On Monday, Germany's Ifo institute lowered its economic growth forecast for the country to 0.2%, citing subdued consumer sentiment and companies' hesitance to invest. Ifo anticipates a slight improvement next year with a forecasted growth of 0.8%.
In December, Ifo had projected a 0.4% growth rate for this year, conditional on overcoming structural challenges. The institute also highlighted potential forecasting uncertainties due to upcoming economic policy decisions in Germany and the United States.
The most recent forecast was finalized on Thursday by Ifo. This was just before Friedrich Merz, the Chancellor-designate, announced key support for a significant increase in government borrowing, potentially paving the way for approval of the historic deal by the outgoing parliament this week.
Timo Wollmershaeuser, Ifo's head of forecasts, remarked, "The German economy is at a standstill. Despite a boost in purchasing power, consumer sentiment remains subdued, and businesses are hesitant to invest."
Last year, Germany was the sole G7 nation to see negative growth for two consecutive years. Ifo pointed out that the industry is especially struggling with weak demand, intensified global competition, and significant risks associated with political uncertainties in the U.S.
Moreover, the German export sector could face severe challenges from potential U.S. tariff hikes on European goods, as noted by Ifo.