The developments, trends, and challenges of the German economy were discussed during the annual economic dialogue of the Ifo Institute of Munich, which recently took place in the event hall of the Munich Chamber of Industry and Commerce, with the participation of around 100 business executives, political representatives, and members of the academic community.
The keynote address was delivered by Ifo President Professor C. Fuest, on the topic: “How can Germany overcome the investment crisis?” Professor Fuest began by presenting the Institute’s estimates regarding the main economic indicators of the German economy, which, according to Ifo, remains trapped in a growth crisis, with weak GDP expansion, low productivity, and a persistent lack of investment — particularly in public infrastructure (shortages in school buildings, overburdened rail and road networks, bridges in poor condition, and insufficient digital services).
Private investment also remains stagnant, while countries such as the United States, Austria, France, and Switzerland have already recovered significantly.
Following the stagnation of the first half of 2025, inflation-adjusted GDP is expected to grow by only 0.2% on an annual basis. Economic output is projected to increase by 1.3% and 1.6% in 2026 and 2027, respectively, when a notable acceleration in wage growth is also anticipated. Companies across all sectors continue to report persistently weak demand for goods and services, as well as a deterioration in their international competitiveness. Exports are being weighed down by U.S. import tariffs, which are expected to remain unchanged during the forecast period, while the EU–U.S. agreement is not expected to have an immediate impact on these projections.
The economic crisis and demographic changes are also affecting the labor market. In 2025, employment is forecast to increase by only 19,000, while during 2026–2027, the unemployment rate is expected to fall to 6.1% and 5.4%, respectively. Inflation is projected at 2.2% in 2025, declining slightly to 2.1% in 2026, aided by the reduction in high energy prices (through lower network fees and the abolition of gas storage surcharges).
Factors slowing growth dynamics include high energy costs, a shortage of skilled workers, a downturn in the construction sector, geopolitical uncertainty, bureaucratic constraints, and excessive tax burdens with insufficient performance monitoring of public investments. In particular, reducing bureaucracy is seen as a prerequisite for long-term planning security. According to Ifo studies, Germany “loses” an average of up to €145 billion per year in economic output due to bureaucracy, while if the country had implemented a substantial reduction in red tape since 2015, per capita annual GDP would be about €2,500 higher today.
According to Professor Fuest, the new Special Infrastructure Fund, with its own borrowing arm dedicated to additional investments in infrastructure and achieving climate neutrality by 2045, amounting to up to €500 billion, cannot by itself generate long-term productivity gains unless accompanied by structural reforms. Given that this new fund will only be considered successful if the federal investment ratio is achieved in the respective fiscal year, the key policy question now arises: Do public infrastructure investments make sense if the necessary projects could be carried out privately? The Special Fund will be established for a period of 12 years, and its loans will not count toward the “debt brake”, similar to the new German regulation for defense expenditures.
A panel discussion followed, titled “Charting the Course – How Can the Special Infrastructure Fund Become a Growth Engine?”, moderated by journalist C. Nitsche (Bavarian Broadcasting), with participants including J.-M. Ehbauer (Head of Munich’s Construction Department), T. G?nner (CEO of the Federation of German Industries – BDI), Dr. R. L’Hoest (Head of Competition and Structural Policy at the Federal Ministry for Economic Affairs and Energy), T.-O. M?ller (CEO of the German Construction Industry Federation), Dr. P. Nagl (Chairman of DB InfraGO), and C. Fuest, President of the Ifo Institute.
Key takeaways from the panel:
T.-O. M?ller, CEO of the German Construction Industry Federation, called for faster political decision-making so that the sector can prepare for when and which funds will be available for specific projects — such as roads, bridges, and waterways.
T. G?nner, CEO of the BDI, shared a similar view, emphasizing that to ensure the Special Fund’s resources generate macroeconomic impact, fast approval procedures, systematic reduction of bureaucracy, and efficient resource allocation are essential.
Regarding criticism that the loans obtained under the fund might be used not for additional investments but to fill budget gaps, the panelists agreed that this risk can only be mitigated through a clearly documented investment plan for new infrastructure projects.
It was also noted that since the fund is expected to significantly increase demand for infrastructure projects, wages could rise, especially in sectors already facing severe skilled labor shortages.
Finally, clear prioritization of investment projects was deemed crucial. New investments should target areas with the greatest potential impact on growth and competitiveness, while also considering whether sufficient capacity exists for their implementation.
(*) Information provided by the Office of Economic and Commercial Affairs in Munich.
