Economic experts express doubts about the long-term sustainability of the ongoing economic recovery
The German economy is projected to see significant growth in 2026, but concerns remain about whether it will establish a self-sustaining recovery, according to various economic forecasts.
The growth is largely driven by fiscal stimuli from the state, including increased spending from the infrastructure fund and higher defense expenditures. However, without necessary reforms, this growth may not lead to a sustainable stabilization of the economy, warns Clemens Fuest, President of the Ifo Institute.
The forecasts for 2027 vary between 0.6% and 1.6%, marking a modest increase compared to the current economic climate. In the manufacturing sector, excluding construction, the growth is much more modest, at 0.9 to 1.2%.
One of the major concerns for economists is the low private investments in Germany. Current investment in equipment is stagnant at the level of 2015. This, coupled with high energy costs, bureaucratic burdens, and inadequate digital infrastructure, continues to hinder the investment readiness of companies in Germany.
In 2024, the Leibniz Center for European Economic Research (ZEW) reported the lowest number of newly founded companies in 30 years in Germany, with only 160,852 firms established. This historic low has raised concerns about the future of entrepreneurship in the country.
Clemens Fuest has warned of a "straw fire effect" if the announced "autumn of reforms" by the federal government does not materialize. He also emphasizes that these issues are affecting potential company founders.
In the medium term, the economic situation could be even more serious. A higher debt level and thus greater interest burden would further restrict the investment scope of the state, according to economic research institutes in Munich, Essen, Halle, and Kiel. They have downgraded their forecasts for Germany's economic growth in 2022, predicting a barely noticeable growth of between 0.1 and 0.2%.
Despite these challenges, there are positive signs. The Ifo Institute predicts a 3.6% increase in gross value added in construction in 2026 and a 4.1% increase in 2027. This growth, coupled with the necessary reforms, could help establish a self-sustaining recovery for the German economy.
In conclusion, while the German economy is expected to see growth in the coming years, there are significant challenges that need to be addressed to ensure a sustainable recovery. The focus on necessary reforms, investment in infrastructure, and addressing the barriers faced by companies are crucial for the future of the German economy.
