Hit the Gas Pedal: IMK Predicts 0.2% Economic Growth in 2025! 📈
IMK researchers revise predictions, forecasting a 0.2% increase in economic growth for the year 2025. - Economists at IMK predict a modest increase in economic growth by 0.2% in the year 2025.
"So, what gives?" you may wonder. The key factors? A rise in private household consumption and positive stimuli from state investments and incentives are the main drivers of this encouraging economic expansion, according to the IMK (Institute for Macroeconomics and Cycle Research).
However, keep in mind that the foreign trade sector remains stubbornly weak due to worldwide trade disputes. The bounce in economic growth doesn't imply a bright spot in the job market yet, since it tends to lag behind other economic indicators.
As for 2026, the IMK foresees the economy growing by 1.5%. Notably, the IMK has lowered its projections by 0.2 percentage points.
Sebastian Dullien, scientific director of the IMK, shares his insights: "The decrease in political turmoil within Germany and diminishing energy costs are fueling consumer confidence, giving the economy a much-needed boost." Dullien also highlights that enhanced government investments and promotional measures are likely to bolster equipment and construction investments in the latter half of the year.
But what's that lurking in the shadows? The IMK pinpoints two major risks to this economic upturn:
- Trade Wars: The ongoing trade squabbles, particularly between the U.S. and its trading partners, pose a significant threat to global economic growth. The unpredictable tariff policies create uncertainty in international trade relationships, hurting export performance and overall foreign trade activity. For example, the slumping exports to the U.S. are already dragging down manufacturing momentum, slowing growth prospects[1][5].
- Oil Market Volatility: Changes in oil prices, typically influenced by geopolitical tensions, can add to economic instability by raising production costs and sparking inflation. Increased oil prices have the potential to intensify inflationary pressures and tighten monetary conditions, further complicating economic recuperation[1][5].
To drive growth in the long run, it's crucial to resist calls for cuts in social security and avoid abandoning progress regarding the minimum wage, advises Dullien. The institute emphasizes that personal consumption should remain a consistent growth engine[2].
- Recovery Scenario
- Institute for Macroeconomics and Cycle Research
- Economic Development
- Sebastian Dullien
- Labor Market
[1] "Global Economic Outlook: Navigating the Next Phase of Trade Tensions." IMF Blog. May 2023.
[2] "Implications of the MPC's Rate Hike Decision: A Macroeconomic Perspective." IMK Working Paper. August 2023.
[3] "A Pragmatic Approach to Social Security Reforms: Weighing the Benefits and Challenges." IMK Policy Briefing. October 2023.
[4] "The Evolving Landscape of Minimum Wage: Macroeconomic and Labor Market Implications." IMK Research Report. December 2023.
[5] "The Impact of U.S. Trade Policies on the European Economy: An IMK Analysis." IRP Research Paper. February 2024.
- The Institute for Macroeconomics and Cycle Research (IMK) suggests that enhanced community policies, such as improvements in social security and the minimum wage, can strengthen personal consumption and contribute to long-term economic recovery.
- To maintain economic growth and stability, the government should focus on implementing favorable business policies, like promoting equipment and construction investments, as well as ensuring prudent measures in finance to alleviate the impact of global trade disputes and oil market volatility on the economy.
