Germany cuts growth outlook amid uncertainty

The German government has lowered its economic growth forecasts for 2026 and 2027, highlighting mounting uncertainty weighing on Europe’s largest economy and clouding prospects for a sustained recovery. The revision reflects concern that external pressures and subdued domestic momentum continue to constrain activity despite policy efforts to stimulate growth.

In its latest economic outlook, Berlin now expects gross domestic product to expand more slowly than previously anticipated, citing weaker global demand, trade tensions and geopolitical risks. Germany’s export-orientated economy remains particularly exposed to fluctuations in international markets, with sluggish industrial output and cautious business investment dampening near-term prospects. Officials acknowledged that while the economy is expected to improve from recent stagnation, the pace of expansion is likely to remain modest.

Domestic factors have also contributed to the downgrade. High energy costs, persistent inflationary pressures and tighter financial conditions have weighed on consumer confidence and corporate spending. Although inflation has eased from recent peaks, households remain cautious, limiting the contribution of private consumption to growth. At the same time, companies have delayed investment decisions amid uncertainty over global demand and regulatory conditions.

The government has pointed to fiscal measures as a partial offset to these headwinds. A large special fund aimed at boosting infrastructure, digitalisation and climate-related investment is intended to support medium-term growth. However, progress in deploying these resources has been slower than planned, reducing their immediate economic impact. Economists have warned that without faster implementation, fiscal support may fall short of compensating for external weakness.

Structural challenges continue to loom large. Germany faces long-standing issues around productivity growth, labour shortages and bureaucratic complexity, which have become more visible during the recent period of economic underperformance. Business groups have urged the government to accelerate reforms to improve competitiveness, streamline regulation and encourage private investment, arguing that stimulus alone cannot deliver a durable recovery.

Looking ahead, the revised forecasts underscore the fragile nature of Germany’s economic outlook. While modest growth remains the central scenario, risks are skewed to the downside if global conditions deteriorate further or domestic reforms stall. The government’s challenge will be to restore confidence by combining targeted fiscal support with credible structural changes, ensuring that Europe’s largest economy can regain momentum in an increasingly uncertain global environment.

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