MUNICH / LONDON (IT BOLTWISE) – The German economy is facing challenges as the Ifo Institute has significantly lowered its growth forecasts for the coming years. The main reasons are US tariffs and internal structural weaknesses. Despite these challenges, the labor market remains robust while inflation remains moderate.
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The German economy faces significant challenges in the coming years. The Ifo Institute has significantly revised its growth forecasts for 2026 and 2027 downwards. The main causes are the ongoing burden of US tariffs under Donald Trump’s presidency and internal structural weaknesses. Despite this negative outlook, the labor market remains relatively stable, which provides a glimmer of hope in the otherwise gloomy forecast.
The USA’s customs policy has had a significant impact on German exports. Although the acute conflicts between the USA and the EU have been defused, uncertainties remain high. The agreement reached between the EU and the USA in the summer provides for a trade agreement, but tariffs on certain industries, such as the car industry, have been significantly increased. These measures place additional strain on the German economy and significantly dampen growth.
Another factor inhibiting growth is the internal structural weaknesses of the German economy. Companies and start-ups are confronted with bureaucratic hurdles and an outdated infrastructure. These challenges make it difficult for the economy to adapt to structural change and to develop innovations and new business models. Without far-reaching reforms, there is a risk of further erosion of Germany as a business location.
Although the federal government is planning extensive investments in infrastructure and defense, these measures only have a delayed effect. Experts warn that without structural reforms, government spending could simply be a flash in the pan. The high energy costs and social security contributions as well as the bureaucracy remain unsolved problems that affect the competitiveness of German industry. In the long term, incentives to expand working hours and reforms to increase productivity are necessary to sustainably strengthen the economy.
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