The geopolitical upheaval, including the new tariffs policy in the USA, make structural reforms in Germany even more urgent than before. This was emphasised by the leading economic research institutes last week in Berlin. The spring forecast that they presented gives the CDU/CSU and SPD coalition little hope of an economic tailwind as it starts governing. The economists expect growth of only 0.1% for the current year. They also estimate that the first billions from the agreed financial packages will not be realised until 2026.

However, the economists involved in the joint economic forecast are generally positive about the coalition agreement, saying that there are „several good approaches“ that have the potential to promote economic growth. However, they are „often very vaguely formulated“, said Torsten Schmidt, Head of Economic Research at the RWI – Leibniz Institute for Economic Research. The economic research institutes had already been calling for some of the measures for some time, such as lowering energy prices, promoting start-ups, or a comprehensive reduction in bureaucracy.

Ifo expert Timo Wollmershäuser, who also praised the CDU/CSU and SPD's focus on digitalisation, expects that the future coalition's planned reduction in bureaucracy alone could increase potential growth by 0.2 or 0.3 percentage points. However, like other economists, he is sceptical that the measures mentioned in the coalition agreement will achieve the target of potential growth of well over 1%.

Many of the measures planned by the new coalition are the right ones, but not the big breakthrough, was also the judgment of the German Economic Institute (IW). If the coalition agreement is implemented in full, the IW calculates that the relief will total more than 50 billion euros per year by the end of the legislative period. The Cologne based experts find it questionable that the solidarity surcharge will be retained, saying that "it has long since mutated into a corporate tax in disguise.“ The fact that the coalition prefers to adopt the mothers' pension instead could be a bad omen for the coming years, they said in an analysis.

Stefan Kooths from IfW Kiel also pointed out gaps in the coalition agreement, particularly concerning strengthening incentives to work, and a demographically sound organisation of the social security systems. He also fails to recognise any real change in energy policy. Ifo expert Wollmershäuser also misses a concrete approach to the sustainability of public debt. Overall, the Joint Economic Forecast recommends that the new government focus economic policy more strongly on market mechanisms.

With regard to the economic weakness, the economists state that it is not only cyclical, but also structural in nature. In addition to bureaucracy and the declining labour force, increasing international competition – especially with China – is seen as a negative factor, weakening the relative competitive position of domestic companies. Some production in energy-intensive industries has already been lost due to the energy price crisis. The main risk at present, however, is the protectionist US trade policy.

Because of the US tariffs, economists believe that a third year of recession is no longer unlikely – there has never been such a long period of contraction in the history of the Federal Republic of Germany. The leading economic research institutes are not far off this viewpoint, with GDP now expected to grow by 0.1% in 2025, compared to the 0.8% expected in autumn. In 2026, the financial package for infrastructure and defence should support the economy, and GDP should increase by 1.3 % (previously: 0.5 %). However, 0.1 percentage points must be deducted from the forecasts for 2025 and 2026 due to the US tariffs.

The latest US tariff increases are not yet fully reflected in the forecast: The 20% imposed on „Liberation Day“is not included, but the 25% on steel, aluminium and cars is. If the reciprocal tariffs, which have been suspended for another 90 days, take effect, GDP growth would be 0.2 percentage points lower in both 2025 and 2026. To put this into perspective: the USA is the main buyer of German goods, with exports to the USA reaching a record value of 161.4 billion euros in 2024 and accounting for 10.4% of total German exports.

The institutes expect further progress on inflation: An average annual rate of 2.2% is forecast for the current year, as in 2023. In 2026, it will approach the ECB price target of 2% at 2.1%. Unemployment is likely to increase slightly: after 6.0% last year, unemployment rates of 6.3% and 6.2% are predicted for the forecast period.

The Joint Economic Forecast Spring 2025 was compiled by RWI, Ifo, IfW, IWH and DIW. It serves as the basis for the German government's projections, which will be presented on 24 April. This in turn forms the basis for the tax estimate.