Germany: 2025 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Germany

The 2025 Article IV Consultation highlights that the German economy has been hit with major shocks in recent years, with these adverse effects exacerbated by weak underlying productivity growth. The authorities’ landmark reform of the debt-brake rule in 2025 is expected to help drive a gradual economic recovery. Planned fiscal easing in 2026–27 and the lagged effects of past monetary loosening are expected to support a gradual economic recovery over the next few years. Significant fiscal adjustment measures will also be needed over the medium and long term to offset rising spending pressures from aging-related spending, defense, and interest payments while also stabilizing the debt-to-GDP ratio. Key macro-economic risks include that insufficient productivity-enhancing reforms and/or increasing competition in Germany’s export markets keep growth lower than expected, that supply-chain disruptions could arise from trade policy disputes, and that stretched global asset valuations could possibly reverse, which would adversely affect aggregate demand and possibly stress exposed sections of the financial system.