Germany’s economy is expected to decline by 0.2 percent this year, keeping the country in recession, according to new forecasts from the German Economic Institute (IW).
Germany is significantly affected by the trade conflict triggered by U.S. tariffs, IW explained.
Global uncertainty is discouraging companies from investing, contributing to the decline, which in turn affects large purchases such as new machinery and vehicles. High operational costs in Germany further complicate the situation.
IW concludes that Germany, with a gross domestic product (GDP) that decreased by 0.2 percent in 2024, will remain in recession.
The biggest risk to the global economy this year, according to IW, is U.S. trade policy. Without U.S. tariff policies, the global economic performance in 2025 could have been up to 0.8 percent higher, the institute stated.
Prospects for the industrial and construction sectors remain bleak. Industrial companies are expected to generate lower added value this year, following a 3 percent decline in 2024.
High energy prices, rising wages, and increasing regulation are further pressuring companies.
Construction companies, after a 3.7 percent decline in 2024, continue to face further constraints this year, with high construction costs caused by regulation still hindering the sector.
IW also noted that these trends are now affecting the labor market, with the number of employed decreasing since mid-2024. By summer, the number of unemployed could reach three million, a level not seen since 2010, economists said.
Michael Grömling, head of macroeconomic research at IW, stated that the new German government has an opportunity to reverse the trend, pointing to a planned special infrastructure fund that could help stimulate the economy.
