Published by Global Banking & Finance Review®
Posted on September 5, 2025
2 min readLast updated: January 22, 2026
Add as preferred source on GoogleGermany's GDP is set to grow by 0.2% in 2025, with acceleration to 1.7% in 2026, driven by public financing and domestic demand, despite structural challenges.
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)
Germany's GDP is projected to grow by 0.2% in 2025, a downward revision from the previous forecast of 0.3%.
The recovery is primarily driven by domestic forces, particularly the expansion of the public sector, supported by a public financing package for infrastructure and climate projects.
GDP growth is projected to accelerate to 1.7% in 2026 and 1.8% in 2027, as domestic demand becomes the main growth engine.
Germany faces long-standing structural challenges, including weak productivity dynamics, labor shortages, and high energy costs, which are expected to limit economic momentum.
The positive effects of substantial public funds are expected to obscure the structural growth problems in Germany over the coming years.
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