Germany’s economic recovery remains sluggish, according to a new autumn forecast released by the Institute for Economic Research (IW), a research body closely linked to employers’ associations. The report indicates a continuation of the current stagnation or zero growth compared to the previous year.
The IW has revised downwards its spring forecast for 2025 by 0.2 percentage points. While a modest economic upturn is anticipated for 2025 after three years of recession and stagnation, growth is projected at just one percent compared to the prior year. The report details that the German economy will essentially remain unchanged in 2025, with real gross domestic product and the number of employed individuals stagnating at the previous year’s levels.
Geopolitical tensions and evolving U.S. trade policies are identified as factors contributing to a period of uncertainty within the German foreign trade sector. Consumer spending remains below its potential due to muted employment prospects, despite the normalization of inflation. Similarly, investment activity is being held back by a range of anxieties and a generally cautious approach. The institute suggests a continued, albeit limited, improvement is expected for 2026, with growth estimated at just over one percent – insufficient to constitute a true economic surge.
Surprisingly, employment levels have demonstrated remarkable stability at a high level. Economists at the IW project approximately 46 million individuals employed on average throughout 2025, a figure consistent with the previous year and expected to be maintained into 2026. However, shifts are occurring within the labor market. While the manufacturing and temporary work sectors have seen a loss of 96,000 jobs subject to social security contributions in the first half of 2025, that has been offset by an increase of 103,000 jobs in the public and social service sectors.
The registered unemployment rate is expected to rise to an average of 2.955 million individuals in 2025, representing an unemployment rate of 6.3 percent. Reforms related to social welfare programs are not anticipated to yield noticeable positive effects on the labor market before 2026 and are projected to have a limited impact on reducing unemployment in the immediate term.
