German Economy Faces Stagnation With No Recovery in Sight, Council of Economic Experts Warns

Germany's leading economic advisory bodies — including the German Council of Economic Experts, the DIW, the Kiel Institute, and the Bundesbank — have converged on a 2025 GDP growth forecast of just 0.5%, with only modest improvement to around 0.8% expected in 2026. The Iran war has triggered a significant energy price shock, with heating oil up 40% and gas and electricity prices continuing to climb, hitting Germany especially hard as both a major goods exporter and a fossil fuel importer. US tariff policy compounds the pressure, while rising Chinese exports into European markets are squeezing German industry at home and in third-party markets. Public spending — particularly on defense and a special infrastructure fund — is the sole meaningful growth driver, as household consumption weakens and businesses grow more cautious. Structural problems including an aging population, declining birth rates, falling immigration, and a loss of industrial competitiveness, especially in the automotive sector, are limiting Germany's long-term growth potential. The budget deficit is projected to reach 3.7% of GDP this year and 4.3% next year, both exceeding the EU's 3% stability threshold. Experts warn that without significant reforms to social insurance, labor markets, and industrial investment priorities, Germany's competitive position will continue to erode.