Germany set for tepid 2025 growth, accelerating in 2026 and 2027, DIW says

By Maria Martinez

BERLIN (Reuters) -Germany's economy is showing tentative signs of emerging from a protracted slump, with gross domestic product seen inching up by 0.2% in 2025, according to projections released on Friday by the German Institute for Economic Research (DIW Berlin).

This is a downward revision from the previous forecast of 0.3% growth in June.

"The German economy is recovering, unusually, not through strong foreign trade but through domestic forces — above all through the expansion of the public sector," said the DIW's chief economist Geraldine Dany-Knedlik.

The upturn is expected to be underpinned by a public financing package for infrastructure and climate projects, higher defence spending, and tax incentives aimed at spurring corporate investment, the DIW said.

GDP growth is projected to accelerate to 1.7% in 2026 and 1.8% in 2027 as domestic demand takes over as the main growth engine, partly offsetting waning contributions from net trade.

However, long-standing structural challenges — from weak productivity dynamics to labour shortages and high energy costs — are seen capping momentum.

"The positive effect of the enormous public funds will obscure, in the coming years, the structural growth problems we have in Germany," said Dany-Knedlik.

(Reporting by Maria Martinez, editing by Rachel More)