KfW Research sees GDP growth picking up to one percent after stagnation in 2025

KfW Research (https://www.kfw.de) expects price-adjusted German GDP growth of one percent in 2026. Following surprisingly strong growth of 0.4 per cent in the first quarter, experts now expect GDP to stagnate in 2025. Previously, analysts had forecast a slight contraction of 0.2 percentage points by the end of the year.

No economic turnaround

‘In the short term, the chances of a sustained economic turnaround are slim,’ said KfW Chief Economist Dirk Schumacher. Advance US imports due to tariff threats are likely to be partly responsible for the strong quarterly growth at the beginning of 2025.

The economic upturn is coming from the easing of European monetary policy and the rise in real wages in 2024, according to the report. Nevertheless, private consumption is likely to grow only modestly as real wage growth slows again and the labour market weakens.

Slowly falling energy prices

KfW Research expects growth of 0.8 percent for the eurozone in 2025, accelerating to one percent in 2026. Growth is likely to be weak, particularly in France and Italy, while the strong economy in Spain is expected to cool only slowly.

Service inflation in Germany is offset by falling energy prices and inflation-dampening impulses from US tariff policy. KfW Research is therefore lowering its inflation forecast for Germany by 0.3 percentage points to 2.1 per cent for 2025 and by 0.2 percentage points to 2 per cent for 2026.