Economic experts downgrade predictions: Recovery in 2026 appears less probable
Germany is currently grappling with a series of economic challenges that have been compounded by various factors.
For the first time in a decade, the unemployment rate in August has risen above three million, reaching 6.4 percent. According to forecasts from economic research institutes, this rate could rise further this year and is expected to fall below six percent again by 2027.
The IWH Halle attributes the loss of momentum in exports to technological reasons, while the increasing competition from Chinese products on the sales markets is causing problems for German exporters, according to IfW President Moritz Schularick. Additionally, German industry is facing challenges due to the trade policies of US President Donald Trump.
Economists from the Ifo Institute, IfW Kiel, and RWI Essen have all called for structural reforms in the German economy. Ifo President Clemens Fuest and chief economist Timo Wollmershäuser believe that the debt-financed 500-billion-euro package may be a fleeting measure without fundamental reforms. They argue that making debt is easy, implying a concern about the potential long-term effects of debt financing.
High energy costs, bureaucracy, and inadequate digital infrastructure are identified as brakes on growth by the RWI. If the economic policy standstill continues, the country faces further years of economic stagnation and erosion of the business location, according to Ifo's chief economist Wollmershäuser.
Tax increases, as discussed by Finance Minister Lars Klingbeil and other SPD politicians, are believed by Fuest to accelerate the shrinkage of the economy. The RWI Essen states that structural competitive problems are not solved but merely overshadowed by expansive fiscal policy.
The German economy has shrunk over the past two years, indicating a prolonged crisis. Growth may drop back to zero, and there's a risk it might even shrink due to a shrinking working population and burdens in the pension and healthcare systems, according to Fuest.
Leading economic research institutes have lowered their economic forecasts for this year and the next, citing supply chain disruptions, energy insecurity, and geopolitical tensions as contributing factors. The Ifo assessment suggests that the program will have a lesser effect on the economy in 2026 than initially assumed.
Fuest argues that the current dismissal protection is not necessary for highly qualified workers. If the economic policy standstill continues, the country faces further years of economic stagnation and erosion of the business location.
In 2026, economists expect growth to range between 0.8 (IWH) and a maximum of 1.3 percent (Ifo and IfW). Nevertheless, these forecasts offer a glimmer of hope for an economic recovery in the future.
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