After a minus in the current year, the Bundesbank only expects the German economy to achieve minimal growth in 2025. The central bank has significantly lowered its expectations for both years compared to the June forecast. The economic recovery in 2026 will also be weaker than expected six months ago.
“The German economy is not only struggling with persistent economic headwinds, but also with structural problems,” explains Bundesbank President Joachim Nagel. These put a particular strain on industry as well as its export business and investments. The labor market is now also reacting “noticeably” to the economic weakness that has been going on for a long time.
Prognosis much more pessimistic
For the current year, the Bundesbank expects German economic output to decline by 0.2 percent. In June, the central bank had forecast a 0.3 percent increase in real gross domestic product (GDP) for 2024. Germany is now heading for its second year of recession in a row.
For 2025, the economists at the Bundesbank are only predicting 0.2 percent growth instead of 1.1 percent; expectations for 2026 have been lowered from 1.4 percent to 0.8 percent growth.
Risk of trade conflicts
According to the Bundesbank’s assessment, exports will only pick up gradually. Private consumption will increase steadily, but no longer as strongly as previously expected – also because of the increasingly tense situation on the labor market.
“The biggest uncertainty factor for the forecast at the moment is a possible global increase in protectionism,” warns Nagel. US President-elect Donald Trump has announced high tariffs on imports from Europe. The EU could respond with countermeasures. The export nation Germany would probably be particularly affected by such a trade conflict.
Inflation is gradually falling
When it comes to inflation, German consumers still need a little patience: according to the forecast, the inflation rate will gradually move towards the target of two percent. However, expensive food and services prevent a faster decline. The Bundesbank expects an inflation rate of 2.5 percent this year, calculated using the European method (HICP), and 2.4 percent in 2025.
“From 2026 onwards, the inflation rate in Germany will gradually reach two percent again,” says Nagel. The current Bundesbank forecast shows an HICP rate of 2.1 percent for 2026, and 1.9 percent in 2027.
The European Central Bank (ECB) is aiming for price stability in the medium term with an annual inflation rate of two percent for the entire euro area. Higher inflation rates reduce the purchasing power of consumers. You can then afford one euro less. (dpa)