The German government has revised its economic forecast for 2025, projecting a mere 0.3% growth in its gross domestic product (GDP). This adjustment comes as the nation prepares for a federal election scheduled for February 23, earlier than initially planned. The early election follows the disintegration of the ruling coalition in November, adding to the political and economic uncertainties facing Germany.
Recent economic indicators have painted a challenging picture for Germany's economy. The consumer price index, which had temporarily dipped below the European Central Bank's 2% target in late summer, has seen a resurgence. Additionally, the association of German Industry predicts the economy will contract by 0.1% in 2025, marking the third consecutive year of decline. Finance Minister Jörg Kukies and Economy and Climate Minister Robert Habeck both acknowledge that Germany faces significant structural challenges.
The domestic economy's development remains weak, hindered by geopolitical uncertainties and an unclear economic direction. Annual GDP figures reveal a contraction of 0.2% in 2024 and a 0.3% decline the previous year. These figures reflect a downward adjustment from an earlier October projection, which anticipated 1.1% growth this year. While quarterly GDP figures suggest sluggish performance, Germany has managed to avoid a technical recession thus far.
The German government's recent economic report for 2025 forecasts an average inflation rate of 2.2% this year. The combination of inflationary pressures and economic contraction underscores the challenges confronting policymakers as they navigate this tumultuous period. The upcoming federal election adds another layer of complexity, as political leaders grapple with finding solutions to bolster Germany's economic prospects.