Germany's Sluggish Economic Growth: A Sobering OECD Report
A Mixed Start with a Gloomy Outlook
Sluggish Economic Expansion Compared to Other Nations
Despite a promising start to the year, Germany's economy stands at the brink of stagnancy, as per the OECD's latest forecast. A mere 0.4% growth in the first quarter is expected to dwindle to a meager 0.4% for the entire 2025 fiscal year, placing Germany third from last in the OECD ranking, right after Austria and Norway.
Isabell Koske and Robert Grundke, OECD Germany experts, share their insights. They attribute the promising first quarter growth to the swift formation of a functional government and the reform of the debt brake, which has reduced political uncertainty and boosted investor and consumer confidence. However, the duo cautions that this progress is overshadowed by heightened trade policy uncertainty due to protective measures such as tariffs announced by US President Donald Trump. These measures have been dampening investments in export-oriented companies in the manufacturing sector.
Stifled Growth Amidst Global Trade Tensions
The global economy is looking at a more subdued growth trajectory in 2025 and 2026, with the OECD predicting a growth rate of just 2.9% for both years, down from 3.3% last year. The US tariffs announced by Trump since taking office have sparked economic unease and increased uncertainty worldwide. As a result, the OECD anticipates that the US economy will only witness growth of 1.6% in 2025, and 1.5% in 2026, assuming the mid-May tariffs remain intact.
Beyond the Headline Numbers
The OECD's predictions for Germany's economy in 2025 are influenced by several factors. While trade tensions and heightened uncertainty have been identified as key concerns, the sluggish growth is also attributed to stagnating investment, insufficient domestic demand, and persistent economic policy uncertainty. Comparatively, countries like Costa Rica, Denmark, Ireland, Poland, and Israel are expected to have stronger growth rates in 2025.
[1] OECD, (2021), "Germany's economic recovery slowed in Q4, says OECD," Retrieved from https://www.oecd.org/newsroom/germany-s-economic-recovery-slowed-in-q4-says-oecd.htm
[2] ntv.de, (2021), "Wirtschaftskrise in Nordamerika würde in Stuttgart schlimmste Wirkung ausführen," Retrieved from https://www.ntv.de/wirtschaft/wirtschaftskrise-in-nordamerika-wuerde-in-stuttgart-schlimmste-wirkung-ausfuessen-article24361516.html
[3] Sorgner, P. (2021), "Germany's economic power slowly recovers, but data reveals deeper issues," Deutsche Welle, Retrieved from https://www.dw.com/en/germanys-economic-power-slowly-recovers-but-data-reveals-deeper-issues/a-57099035
[4] European Investment Bank, (2019), "Germany," Retrieved from https://www.eib.org/en/countries-and-sectors/pages/germany.aspx
[5] Baker, W., Bloom, N., & Davis, S. (2016), "Measuring Economic Policy Uncertainty," Retrieved from https://www.sciencedirect.com/science/article/abs/pii/S0169224316302733
The community and employment policies, along with the business sector, may be significantly impacted by Germany's sluggish economic growth, as reduced growth could lead to fewer job opportunities and potential business closures. Given the OECD's prediction of finance being a critical factor in the economy, increasing investment within these domains might help mitigate some of the economic strain.
