European Union’s Economic Engine Is Stalling: German Economists Cut View Of Growth In '25,

 

 

“Germany's economy is set to grow by less than previously expected, hurt by tariffs and a lower-than-expected boost to activity from the government's planned fiscal loosening, leading economists said on Thursday.

 

Europe's largest economy is set to expand by just 0.2% this year and 1.3% in 2026, down from the 0.3% and 1.5%, respectively, under previous forecasts, the Ifo Institute said in a closely watched quarterly forecast.

 

U.S. tariffs are still having a noticeable impact on the Germany economy, said Timo Wollmershaeuser, head of forecasts at Ifo.

 

"Solely the uncertainty associated with the previous tariff dispute is likely to gradually recede, which will support the economy," he said.

 

Industrial production, traditionally a key driver of Germany's economy, and exports helped in the first quarter of the year as sales to U.S. importers were brought forward to get ahead of tariffs. However, much of that reversed after the start of April. Germany, as with the rest of the European Union, faces a 15% tariff on most of its goods imports into the U.S.

 

Meanwhile, Ifo economists expect economic-policy measures planned by Germany's new government to offer less of an uplift to the economy. This year, lawmakers amended the country's constitutional fiscal debt brake, opening the door to hundreds of billions of euros in borrowing, including for defense.

 

Much of the boost will only come in later years, Ifo economists said. If those plans, which include cuts to electricity taxes, lower grid fees and increases in commuter allowances, are eventually implemented, fiscal policy may haul the German economy out of the crisis, they said.

 

"However, if economic policy remains at a standstill, there is a risk of more years of economic paralysis and the erosion of the business location," they added.

 

Germany's economy has barely grown since 2019, as spiraling energy costs and rising global competition hit its industrial base.

 

Gross domestic product contracted in 2023 and 2024.

 

Unemployment is also expected to rise slightly this year, and, while inflation is set to hold at about 2.1% in 2026, it will rise to 2.6% in 2027 as energy prices increase again, the report said.” [1]

 

1. German Economists Cut View Of Growth In '25, '26. Frankl, Ed.  Wall Street Journal, Eastern edition; New York, N.Y.. 05 Sep 2025: A7.