Economy 2026: Stagnation threatens, but there is a glimmer of hope!

Economy 2026: Stagnation threatens, but there is a glimmer of hope!

The German economy is worried about the end of 2025 and is cautious about the coming months. In a survey by renowned institutes such as production, ifo, DIW and RWI, many companies express skepticism about the future business situation. Only 14.9 percent of those surveyed expect a positive turnaround, while 26 percent expect things to get worse. More than half, 59 percent, expect the situation to stagnate, which illustrates the worrying situation.

Expectations are particularly bleak in industry: 26.5 percent of companies here expect a downward trend, while 55.3 percent still expect stagnation. However, a small ray of hope is the electrical equipment industry, where optimistic voices predominate. In the services sector, almost two thirds are optimistic about a stable situation, but 25 percent have serious concerns about negative developments. There are also great concerns in retail: over a third of companies fear that their situation will worsen.

Growth forecasts and influencing factors

The ifo Institute has lowered its growth forecast for 2026 to 0.8 percent, reflecting the negative view of many companies. Only a tiny increase of 0.1 percent is predicted for 2023. In addition, US customs policy is putting pressure on German exports. Higher tariffs could curb growth by 0.3 percentage points in 2025 and 0.6 percentage points in 2026. Although international trade remains robust, Germany and Europe only benefit to a limited extent, which further complicates the already tense situation.

The gross domestic product (GDP) is expected to increase by 1.5 percent in real terms in 2024. An increase of 0.2 percent is forecast for 2025. KfW sees an upcoming investment package from the federal government as an opportunity to stimulate the economy and correct the imbalance somewhat. These fiscal policy measures could even gradually bring about upward momentum, which would be particularly positive for 2026.

The future in sight

Almost half of all industrial companies are already confronted with new trade barriers, which is not a good sign for 2026. Over a third of construction companies expect the situation to worsen, while only 10 percent are optimistic about the future. Given the forecasts, we can expect an unemployment rate of 6.3 percent in 2025, which could easily fall to 5.9 percent by 2027. Inflation is constantly above the 2 percent mark, which also represents a challenge for households.

But there are also bright spots: German industry is showing signs of stabilization, with production and incoming orders hovering at a low level. Despite the gloomy forebodings, a large number of companies hope that the planned investment packages will be effectively implemented. Otherwise there is a risk of serious economic stagnation.

In conclusion, it should be noted that the German economy is caught between stagnating tendencies and hope for government support. Faster and more effective measures are urgently needed to reverse the worrying trend and provide sustainable support to companies.