Germany cuts 2025 economic growth forecast to 0.3% after two-year slump

The German government on Wednesday slashed its 2025 growth forecast for the country's economy, Europe's biggest, to just 0.3% after it shrank for two consecutive years.

The new projection is much lower than the government's previous forecast of 1.1% growth, issued in October.

Germany has managed no meaningful economic growth in the past four years as it has struggled to deal with major shifts in the global economy and with structural challenges of its own. Preliminary figures released two weeks ago showed that gross domestic product contracted by 0.2% last year, following a 0.3% decline in 2023.

The economy is one of the top issues in the campaign for an early German parliamentary election on Feb. 23. It is being held seven months before it was originally scheduled after Chancellor Olaf Scholz's three-party coalition collapsed in November in a dispute about how to revitalise the economy.

Contenders to lead the next government have made contrasting proposals on how to get it growing again.

Vice Chancellor Robert Habeck, who is also Germany's economy minister, said in a statement that the global crises of recent years have hit our industry- and export-oriented economy particularly hard, although an energy crunch was headed off after Russia's full-scale invasion and inflation has fallen.

He said it has become increasingly clear that Germany suffers from fundamental structural problems including a shortage of skilled labour, overflowing bureaucracy and investment weakness, in private as well as public investment.

Habeck pointed to the currently high uncertainty about US economic and trade policy and uncertainty about Germany's own post-election course as a brake on sentiment for investment and consumers.

Germany's main industry lobby group on Tuesday issued an even gloomier outlook for this year. It forecast that the economy will shrink again, contracting by 0.1%.

For years, governments have delayed important reforms, held back investments and made do with the status quo, said Peter Leibinger, the head of the Federation of German Industries, or BDI.