The German economy grew surprisingly significantly in the first quarter of this year, by 0.4%. As some one-off effects favoured this development, the second quarter is likely to be weaker. In the meantime, a new government is in office. The Union had announced comprehensive economic reforms. However, it remains to be seen to what extent the necessary measures to improve the location conditions can be implemented in the coalition with the SPD in view of partly different economic policy ideas. With clear reform decisions, the previous reluctance, especially among investors, is likely to dwindle. The new coalition government has also greatly expanded the debt possibilities for the infrastructure and defense sectors even before taking office. This will provide economic stimulus in the future. In the short term, however, there are still dampening influences. In addition to the geopolitical uncertainties, there is the unpredictable trade policy of the new US administration; tariffs have also been increased or introduced on German exports to the USA, and there is a threat of more. This reduces the economic revival expected for the rest of the year. For 2025, the HWWI expects real gross domestic product to grow by 0.2% on an annual average, not least because of the negative overhang from 2024. Assuming that the new government quickly implements important economic reforms, starts additional spending on infrastructure and defense, and further monetary easing, economic growth of 1 1/2% is possible for 2026.

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.