German economy seen growing only 0.1% this year, IfW says

By Maria Martinez

BERLIN (Reuters) -Germany's economy is set to tread water this year despite firmer sentiment, with gross domestic product expected to edge up by 0.1% after two years of contraction, according to forecasts published by the Kiel Institute for the World Economy (IfW).

Business expectations have improved on prospects of higher government spending, but U.S. tariff policy remains a headwind, the IfW said on Thursday.

Berlin is poised to deploy newly available public funds from 2025, which could lift next year's growth by about 0.6 percentage points and add a roughly half-sized boost in 2027.

GDP is seen growing by 1.3% in 2026 and 1.2% in 2027, according to the IfW.

As activity improves, the unemployment rate is projected to fall to 5.8% by 2027 from 6.3% this year, while the budget deficit widens from 2% of GDP in 2024 to 3.5% in 2027.

(Reporting by Maria Martinez, Editing by Rachel More)