Economic crisis: Economists reduce forecasts: revitalization 2026 is smaller

Despite the announced economic stimulus package of the federal government, the prospects for the German economy are growing. Leading economic research institutes expect a revival in the next two years, but the medium -term perspectives remain unpleasant.

The Munich IFO Institute, the IFW Kiel, RWI Essen and IWH Halle lowered their economic forecasts for this and the coming year. Accordingly, the German economy will stagnate this year with mini growth of 0.1 to 0.2 percent.

In 2026, the economists then expect growth between 0.8 (IWH) and a maximum of 1.3 percent (IFO and IFW) and thus hoped less than in summer. According to IFO forecast, the unemployment rate could increase to 6.4 percent this year and decrease again in the next two years.

The weakness could become chronic

Without fundamental reforms of the federal government, however, the Federal Government’s 500-billion-euro package will remain a strawfire, according to IFO President Clemens Fuest and economic leader Timo Wollmerhäuser. “The growth will probably fall back to zero,” said Fuest. “Then there is simply the risk that there may even be a shrinkage, because we have a shrinking personnel population, we have loads in the pension system, in the health care system.”

The German economy is in a tough crisis. Europe’s largest economy has shrunk in the past two years.

Tax increases, as Finance Minister Lars Klingbeil and other SPD politicians discuss, would be the wrong way according to Fuest’s assessment: “If we increase taxes, the shrinkage goes even faster.” According to ifo assessment, the program will also have a lower effect on the economy in 2026 than initially assumed.

“Making debt is easy”

The reform proposals of the two economists include faster digitization and better control conditions for innovations, but also several points that reject the SPD and unions. “We need reforms on the labor market at labor costs,” said Fuest. “And in particular, we have to prevent the social security contributions from increasing through demographic change in the coming years.”

The protection against dismissal in its current form is not necessary for highly qualified workers. Making debt is easy, said the IFO President. “Everyone can do that.” The Federal Government must now show “that it can not only the easy part, but also the demanding”.

Companies invest too little

With its call for structural reforms, the IFO Institute is not alone, the IFW Kiel and the RWI Essen came almost the same. “Expansive financial policy does not solve structural competitive problems, but only overlaid,” said the RWI Essen.

The economists see the lack of investments by German companies as a major problem. The RWI called high energy costs, bureaucracy and a lack of digital infrastructure as brake factors. “If the economic political standstill continues that we have experienced for years, the country will face further years of economic paralysis and the erosion of the company location,” said Ifo economist Wollmershäuser.

According to the economist, the customs policy of US President Donald Trump remains a burden on the German economy. But also negative that German industry is no longer technically at the top in some industries.

Exports also lost their traction for technological reasons, was said in the communication of the IWH Halle. “The increasing competition from Chinese products on the sales markets also troubles German exporters,” said IFW President Moritz Schularick.

The prospects in unemployment are less dark. In August, the number of unemployed had increased for the first time in ten years over the threshold of three million, the quota was 6.4 percent. However, the unemployment rate will go back to less than six percent by 2027 years according to the forecasts of the institutes.