According to a study by the Industrial Institute of the German Economy (IW), the German economy is projected to experience a significantly stronger growth rate in the coming decade compared to the current one. The institute reports that the potential for economic growth, and thus the capacity to increase economic output year-on-year, is expected to accelerate to 0.7 percent annually between 2030 and 2035. This marks an increase from the current decade, during which the growth rate has only been around 0.3 percent, as reported by the “Rheinische Post” (Saturday edition). Furthermore, the study suggests that the potential for growth could rise even further to one percent per year in the latter half of the 2030s.
The researchers attribute this increase in potential growth primarily to the increasing digitalization and the growing adoption of artificial intelligence (AI), which is expected to boost both productivity and overall efficiency. Additionally, an expected rise in capital utilization is anticipated to contribute an average of half a percentage point to this growth.
However, achieving this growth depends heavily on resolving Germany’s long-standing weakness in investment. The study highlights the massive investment required for AI deployment, the expansion of energy infrastructure, and climate protection measures, noting that the current situation requires overcoming persistent domestic investment shortfalls. In response to this need, the German government plans to host an international investor summit in Berlin next week to stimulate private investment.
Conversely, the contribution of labor input is expected to be slightly negative over the next 15 years. This decline is due to demographic changes, which point to a marked reduction in Germany’s working-age population. The study warns that by 2040, only 50.8 million people will be of working age-a decline of 7.7 percent, or 4.3 million people, compared to the base year of 2025.
