German Economy Set for Slow Recovery Amid US Tariff Pressures

The Ifo Institute expects the German economy to recover only gradually over the next two years, as external pressures and internal structural weaknesses continue to weigh on growth.

Researchers said the German economy is facing added strain from US tariff policies alongside long-standing domestic challenges, prompting a notable downgrade to growth forecasts for 2026 and 2027.

Under the revised outlook, the German economy is projected to grow by about 0.8% in 2026 and 1.1% in 2027, while growth this year is expected to be just 0.1%, effectively signaling stagnation.

Structural Adjustment and Business Constraints

The institute noted that Germany’s structural transition is progressing slowly and at a high cost, despite innovation and new business models, with bureaucracy and aging infrastructure continuing to hinder companies, especially startups.

Even so, the labor market is expected to remain relatively resilient, though a stronger rebound will likely depend on deeper reforms and policies that boost investment and productivity.