Germany's economic growth forecast in 2025 has been reduced to 0.2% due to increased customs burdens, according to Ifo. Struggling US economy grappling with customs-related issues.

The German economy is bracing for a challenging year, with the unemployment rate projected to rise to 6.3% in 2022, according to Timo Wollmershäuser, the Ifo chief economist. However, the federal government's economic policy measures, although amounting to only 9 billion euros this year, are expected to provide some relief in the coming years.

The measures, which include accelerated depreciation possibilities, the reduction of VAT in the catering industry, the electricity tax for industrial businesses, reduced network charges, and the increase of the commuter allowance, are likely to take effect mainly from next year, Wollmershäuser says.

If consistently and convincingly implemented, these measures can help pull the German economy out of the crisis, Wollmershäuser adds. The measures are expected to increase to 38 and 19 billion euros in the years 2026 and 2027, respectively.

The economic policy measures are not without their challenges. US tariffs are weighing on the German economy, according to Wollmershäuser. However, no immediate effects on the forecast are expected from the agreement in the trade dispute between the USA and the EU.

The good news is that the German economy is expected to grow by 0.2% this year and 1.3% in 2026. The growth forecast for 2027 is 1.6%. Inflation in Germany is projected to average 2.2 percent in 2024, and is expected to decrease slightly to 2.1 percent by 2026, before rising again to 2.6 percent in 2027.

The unemployment rate in Germany is further projected to decrease to 5.4 percent in 2027. Energy prices in Germany are expected to decrease due to the decrease in network charges and the abolition of the gas storage surcharge at the beginning of 2026. However, energy prices are expected to increase again in 2027 due to a significant increase in the CO2 price.

The economist who will lead the German federal government's economic policy measures is currently not explicitly named, but Lars Klingbeil, the Federal Minister of Finance as of 2025, is prominently involved in presenting the government's budget and economic plans for 2026. The expected impact of these measures includes record investments aimed at creating new jobs, fair wages, affordable housing, and addressing the investment backlog, which is intended to promote growth, employment, and reforms through 2026 and beyond. However, from 2027 onward, there will be a comprehensive review and consolidation of subsidies and fiscal policies due to fiscal challenges.

The Ifo Institute has revised its growth forecast for Germany, with the German economy expected to face an increase in unemployment by 155,000 people this year. Despite these challenges, the German economy is expected to recover and grow in the coming years, thanks to the federal government's economic policy measures.