The German economy continued to develop weakly in the winter half of 2024/25, as private consumers and companies continued to hold back in the uncertain run-up to the new elections in February 2025, and exports continued to decline. In the new election, the Union received the majority; it has announced comprehensive economic reforms – such as tax relief, lower energy costs, reduction of bureaucracy, infrastructure investments and a more efficient state. However, in the likely coalition with the SPD, the aforementioned measures are unlikely to be fully implemented in view of the sometimes very different economic policy ideas. Only after the coalition agreements are available is the reluctance of private consumers and especially investors likely to dwindle. In addition to the geopolitical uncertainties, there is the more restrictive trade policy of the new US administration; German exports to the USA are also threatened with tariffs. All this dampens the economic revival expected for the rest of this year. The Hamburg Institute of International Economics (HWWI) therefore expects an annual average increase in real gross domestic product of only 1/4% (previously 1/2%) for 2025, partly because of the negative overhang from 2024. Assuming that the future coalition can agree on important economic reforms and taking into account expected catch-up effects and a further easing of monetary policy, economic growth of 1 1/2% is still expected for 2026.

The inflation rate for consumer prices has now settled close to the stability mark of 2%. However, the significant increase in labor costs keeps the so-called core rate even higher, most recently 2.6%. In the course of this year, however, inflationary pressures are likely to ease further with more moderate wage agreements. Then the inflation rate should stabilize at 2%.

It is not only because of the geopolitical uncertainties – recently exacerbated by the tensions between the USA, Ukraine and Europe – that the risks to this forecast remain high. The coalition negotiations are still pending, and the fewer drastic measures to improve the location conditions they contain, the more limited the growth opportunities. The preliminary clarification of the financing issues for defense and infrastructure in the exploratory talks still has to be passed by the Bundestag with a 2/3 majority; then this can act like an economic stimulus program.