ifo Economic Forecast Autumn 2025: Fiscal Policy Could Lift German Economy out of the Crisis

The German economy remains in crisis. Although it has managed to emerge from the recession that began with the explosion in energy prices in 2022, economic output stagnated in the first half of 2025. This forecast assumes that the current US import tariffs will remain unchanged throughout the forecast period. This is weighing on German exports and thus on value added in the manufacturing sector. It is also assumed that the new federal government will resolutely implement the plans resulting from the new financial constitution for infrastructure and defence that were announced in the coalition negotiations. These measures are likely to take effect primarily from next year onwards and stimulate government consumption and investment spending as well as corporate investment in particular. If, at the same time, the high level of uncertainty gives way to consistent and convincing implementation of the planned measures, fiscal policy could lift the German economy out of the crisis and quarterly gross domestic product growth rates could rise to 0.4 percent in the next two years.