While many economists believe it will return to stronger growth in 2026, hopes of a quick recovery are fading amid doubts over Berlin's planned investment spree under Chancellor Friedrich Merz. Before Christmas, Germany's Bundesbank lowered its growth forecast for 2026 to 0.6%, down from its previous June forecast of 0.7%. However, the central bank raised the forecast for 2027 to 1.3%, predicting that the pace of economic activity would pick up from the second quarter of 2026.
Data for the first three quarters of 2025 have shown that smaller German firms have borne the brunt of almost three years of economic downturn in Europe's biggest economy over the past three years. On December 12, the chief analyst at the Association of German Chambers of Industry and Commerce (DIHK), Volker Treier, told news agency Reuters that the "wave of insolvencies continues." He added that small and medium-sized enterprises in particular were "running into difficulties."
The German Council of Economic Experts warned the Merz government on Wednesday that there is no economic upturn in sight for 2026 forecasting GDP growth of just 0.9%. The council urged a change of course, calling for, among otherthings, reforms to inheritance tax law. The Council of Economic Experts also warned the government not to squander the opportunity to invest the country's Special Fund for Infrastructure and Climate Neutrality (SVIK), saying not to do so would be to risk further economic stagnation.