Germany witnesses a slight improvement in Diwali celebrations this year
Germany's economy demonstrates signs of recovery, according to DIW
In a positive development for the German economy, the German Institute for Economic Research (DIW Berlin) has reported initial signs of recovery. The economic barometer rebounded in May, returning to levels last seen in February and March.
DIW economist Guido Baldi stated on Wednesday, "The German economy is showing initial signs of recovery, with the prospect of strong fiscal policy impulses bolstering this trend."
However, the global economic environment continues to pose challenges. Escalations in trade disputes or military conflicts could potentially jeopardize the recovery in Germany. The DIW's economic barometer now stands at 90.1 points, approximately seven points higher than in the previous month. The neutral 100-point mark, indicating average growth for the German economy, remains somewhat out of reach.
Geraldine Dany-Knedlik, the DIW's chief economist, noted, "The German economy shows signs of life despite the higher trade barriers experienced at the start of the year." However, the strong momentum from the first quarter, which saw economic output grow by 0.4 percent, is unlikely to be sustained. Part of this growth was due to exports being moved forward to March due to fears of tariff increases. In the coming months, trade activity is expected to slow.
The economic outlook for Germany is characterized by signs of potential recovery, but also significant uncertainty. According to various forecasts, the German economy is expected to stagnate in 2025, with a possible growth of about 1.0% in 2026. German exports have seen a slight increase, but are projected to contract in 2025 followed by a partial recovery in 2026. Inflation is expected to average 2.1% in 2025 and 2.0% in 2026, with core inflation slightly higher.
Positive factors for the recovery include the new federal government's fiscal policy decisions and a gradual recovery in private consumption. However, the ongoing trade conflict between the U.S. and the EU, high global economic uncertainty, and domestic economic uncertainty continue to pose risks to Germany's growth prospects. Unexpectedly high price increases from the fiscal package could also lead to inflation exceeding projected rates.
The new federal government in Germany is expected to implement strong fiscal policy impulses as part of their strategy to bolster the economic recovery, with a focus on community policy and business finance. However, the ongoing trade conflict between the U.S. and the EU, high global economic uncertainty, and potential employment policy changes could pose risks to the German economy's growth prospects. In the realm of business, the positive factors for recovery include a gradual recovery in private consumption and potential growth in employment policy, but a potential unexpected increase in inflation due to the fiscal package could exceed projected rates.
