OECD Lowers Germany's 2025 Growth Forecast Due to Political Issues

The Organization for Economic Cooperation and Development (OECD) has revised its economic growth forecast for Germany, lowering the previously predicted growth rate of 1.1% for 2025 to 0.7%.

Isabell Koske from the OECD highlighted the country's anticipated poor performance, stating, "By 2025, Germany will be at the bottom among OECD countries." This downgrade comes amidst expectations that the political turmoil following last month's collapse of Germany's coalition government will further exacerbate economic challenges. Additionally, Donald Trump's victory in the presidential election in the United States has heightened concerns about potential trade disputes with the U.S., which is Germany's key trading partner.

The OECD noted that increased medium-term uncertainty has arisen from the inability to finalize the 2025 budget and the dissolution of the coalition government. Due to political instability, it now seems unlikely that many economic stimulus measures planned by the government will come into effect before the early elections scheduled for February 2025.

Germany, the largest economy in Europe, is expected to fall behind the Eurozone's average growth rates, which are projected at 1.3% for 2024 and 1.5% for 2025. Despite near-term challenges, the OECD anticipates an increase in economic activity in Germany in 2026, predicting a growth acceleration to 1.2%.

Factors such as low inflation and rising wages are expected to boost real incomes and private consumption. The OECD also forecasts a gradual recovery in private investment, driven by high corporate savings and a slow decline in interest rates. However, according to the OECD's economic outlook, ongoing policy uncertainty is likely to continue adversely affecting investor confidence.