Berlin is at risk of “squandering opportunities” to revive Germany’s ailing economy unless real, structural reforms follow on the heels of its debt-fuelled investment splurge.
That was Wednesday’s warning from the “wise (wo)men”, the German Council of Economic Experts, who advise the federal government on economic affairs in a report predicting another year of near-flat growth.
Europe’s largest economy is experiencing a post-war record of seven successively flat years, including two full recessions in 2023 and 2024.
This year is likely to see growth of 0.2 per cent at most while the experts have cut their forecast for next year to just 0.9 per cent growth.
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The federal government is more optimistic, predicting 1.3 per cent next year thanks to the delayed effects of corporate tax relief measures and investment from its €500 billion debt-financed investment programme.
The latter, however, is the main bone of contention in the economic experts’ report.
They pointed out that, since its launch six months ago, this programme has delivered “merely a low positive effect” on growth: enough to drag Germany back out of recession but no more.
The main reason, in their view: debate over reforms rather than actual implementation, while more than half of the borrowed money in the “special fund” is being used for election promises and pre-existing projects rather than the promised new infrastructure investment.
“The opportunities for infrastructure and climate neutrality offered by the special fund must not be squandered,” warned Prof Monika Schnitzer, chairwoman of the wise (wo)men group, presenting the annual report in Berlin.
Even by the grim standards of recent years, the 2025 report is a gloomy read. It notes that the German economy has grown, in real terms, by only 0.1 per cent in the last five years.
The economy is struggling with both cyclical and structural challenges, according to the analysis, while industrial output – a key factor for this export-driven economy - remains 5 per cent below 2019.
Real incomes are down because of inflation spikes between 2021 and 2023, though that has stabilised at 2.1 per cent according to new data.
Meanwhile saving remains high and private consumption down, as voters wait for the federal government of Friedrich Merz to deliver on key campaign promises around infrastructure, housing, education and defence.
“Future-oriented spending in Germany has been too low for years,” the report warns, with little hope of change in the near future.
It makes several unpopular proposals that the government is unlikely to implement, such as a “user-based” levy on infrastructure use – read tolls - for private cars on motorways.
Germany’s economic weakness is visible in other data, such as a jobless rate that has risen in the last three years to its highest level yet of 6 per cent. Separately the number of advertised new jobs has dropped by around a million compared to three years ago.
