 German Economy in the Starting Blocks—Global Economy Holds Its OwnGeraldine Dany-Knedlik, Guido Baldi, Nina Maria Brehl, Hella Engerer, Angelina Hackmann, Konstantin A. Kholodilin, Frederik Kurcz, Laura Pagenhardt, Jan-Christopher Scherer, Teresa Schildmann, Hannah Magdalena Seidl, Ruben Staffa, Kristin Trautmann and Jana Wittich DIW Weekly Report, 2025, vol. 15, issue 50, 349-363 Abstract: The German economy has stabilized in the current year and is looking ahead to a fiscal policy-supported upturn starting next year. Since the fall, an expansion in public demand has been providing important economic impetus. The private sector, on the other hand, has so far been more subdued. Trade policy uncertainties, high production costs, and structural weaknesses are causing particular concern for the German export industry. Overall, the mood is not very cheerful at the moment, especially as the initial hope that the new federal government would quickly improve the long-term growth outlook gave way to increasing disillusionment in recent months. Domestic economic output stagnated in the third quarter. While private households and companies acted cautiously, a sharp rise in government spending prevented a further decline in total economic activity. Private consumption fell despite higher disposable incomes, and the savings rate rose to 10.7 percent. The tense labor market situation has likely been another factor. At the end of the year, it will again be the state that supports the economy, while private demand and investment activity remain subdued. No stimulus is expected from foreign trade in the short term. All in all, economic output is likely to increase by 0.2 percent in the fourth quarter. A dynamic upturn is on the horizon for next year, although many structural problems will likely remain unresolved for the time being. The expansionary stance of fiscal policy is a key factor. The available fiscal leeway allows for rising public investment and strong government consumption. Increasing domestic demand is expected to stimulate investment in equipment and construction activity, while production, employment, and private consumption will recover gradually. After a projected growth rate of 0.2 percent in the current year, the DIW Berlin expects economic growth of 1.3 and 1.6 percent respectively for the next two years. It is crucial for the upturn that the additional public funds are actually used. Despite the tightening of US trade policy, the global economy is proving more robust than expected. Higher tariffs are slowing growth, but global trade remains dynamic, especially in Asia. New US agreements with numerous countries are reducing uncertainty and improving business sentiment in many places, while fiscal stimuli are supporting domestic markets. The US economy is losing momentum at the end of the year, the eurozone is growing moderately, and China is just missing its target. Global economic growth is projected to be 3.3 percent this year, 3.0 percent in 2026, and 3.2 percent in 2027. Keywords: Business cycle forecast; economic outlook (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:diw:diwdwr:dwr15-50-1 Access Statistics for this article DIW Weekly Report is currently edited by Tomaso Duso, Marcel Fratzscher, Peter Haan, Claudia Kemfert, Alexander Kritikos, Alexander Kriwoluzky, Stefan Liebig, Lukas Menkhoff, Karsten Neuhoff, Carsten Schröder, Katharina Wrohlich and Sabine Fiedler More articles in DIW Weekly Report from DIW Berlin, German Institute for Economic Research Contact information at EDIRC. |
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