OECD Predicts Germany to Lag in Economic Growth by 2025

The Organization for Economic Cooperation and Development (OECD) has released a forecast indicating that Germany will experience the lowest economic growth among industrialized nations in 2025. The report, published in Paris, anticipates a modest growth rate of just 0.7 percent for the German economy, following a year of stagnation.

This projection marks a downward revision from earlier estimates, which had predicted a growth rate of 1.0 percent for 2025. The OECD's economists also forecast a slight recovery in 2026, expecting growth to reach 1.2 percent.

One of the primary factors contributing to Germany's sluggish economic performance is the decline in exports to China, a market where Germany has significant trade ties compared to other nations. The intense competition from Chinese manufacturers, particularly in the automotive sector, has further strained the German industry.

Recent surveys conducted by the German Chamber of Commerce in China have revealed a growing pessimism among German firms regarding their prospects in the Chinese market. Only about one-third of the surveyed companies foresee positive developments in their sectors in the coming year, marking a historic low for sentiment in this critical market.

Another significant factor impacting Germany's growth is its relatively restrictive fiscal policy, characterized by the re-implementation of the debt brake. This policy limits government spending and investment compared to other EU nations. While it has contributed to a notable decline in inflation, it has also dampened investor and consumer confidence, particularly amid uncertainties surrounding the financing and implementation of environmentally sustainable production practices.

OECD experts have advised future governments to provide clarity on financing and executing green transformations to stimulate economic growth. They suggest reforming the debt brake to create more room for investment, along with eliminating environmentally harmful subsidies, such as those related to company cars and diesel fuel.

Globally, the OECD anticipates a robust economic outlook, with a projected growth rate of 3.3 percent for 2025 and 2026. However, regional disparities exist, with the Eurozone expected to see only modest growth of 1.3 percent in 2025 and 1.5 percent in 2026. In contrast, the United States is predicted to achieve a growth rate of 2.8 percent next year, decreasing to 2.4 percent by 2026. China is also expected to experience growth, with projections of 4.7 percent in 2025 and 4.4 percent in 2026.

While the global economy shows resilience, challenges remain. The OECD Secretary-General has highlighted ongoing uncertainties, particularly regarding geopolitical conflicts that could disrupt energy markets and overall economic confidence. Additionally, escalating trade tensions pose potential risks to growth.

Nonetheless, the OECD has indicated that a potential economic boost could occur if consumer spending and confidence recover more rapidly than anticipated. A resolution to major geopolitical conflicts could also enhance market sentiment and lower energy prices.

The OECD, based in Paris, comprises countries committed to democracy and a market economy. Its membership has expanded to include not only major economies like Germany, the United States, and Japan but also emerging economies such as Mexico and Chile.