Outlook: Germany’s Economy Under Pressure

The federal government plans to lower its economic forecast for Germany again, which could have significant impacts on the economy and investors in the German-speaking region. This adjustment of the forecast indicates a potential weakening of economic development, which can influence both the stock markets as well as interest rates and investment decisions.

Background of the Forecast Adjustment

• Previous Forecasts: Last autumn, the government projected growth of 1.1 percent for the current year. Later, this estimate was lowered to a minimal growth of 0.3 percent.
• Current Situation: The German economy has already experienced slight contraction in 2023 and 2024. Only minimal growth is expected for 2025, and there is a risk of a third consecutive year of recession.
• Influencing Factors: US tariffs could further burden the German economy, particularly the export-oriented sectors. On the other hand, rising real incomes and falling interest rates could provide positive impulses.

Impact on the Economy

1. Stock Markets: A lowered economic forecast can lead to uncertainty in the stock markets as investors adjust their expectations and may reconsider their investments.
2. Interest Rates: Interest rates could be affected since weaker economic development might lead to a more expansionary monetary policy to strengthen the economy.
3. Investment Decisions: Companies might rethink their investment plans if they anticipate weaker economic development, which could dampen investment activity.
4. Government Measures: The federal government might respond to the lowered forecast with additional measures, such as government spending programs for defense and infrastructure to boost demand.

Outlook

The federal government and leading economic institutes continue to see Germany in an economic crisis. The forecasts for 2025 and 2026 are cautious, and there is a risk of stagnation or even further recession. The adjustment of the economic forecast is an important indicator of economic uncertainty and could lead to an adjustment in economic policy.