Connect with us

Europe

German economic recovery delayed until 2026, new forecasts show

Published

on

Germany’s leading institutes expect a slight recovery in the German economy in 2026 at the earliest, but even this will come at a heavy price.

Signs of hope for the German economy from a few months ago have already vanished. Leading economic research institutes lowered their economic forecasts for 2025 on Thursday.

According to an analysis in Handelsblatt, the Kiel Institute for the World Economy (IfW) now predicts that gross domestic product (GDP) will grow by only 0.1%.

The Essen-based Leibniz Institute for Economic Research (RWI) forecasts 0.2% growth, while the Ifo Institute also predicts 0.2% growth. The Halle Institute for Economic Research’s (IWH) growth forecast is also 0.2%.

At the beginning of the summer, they were forecasting average growth of around 0.3% for 2025.

The main reason for the downward revision is that the government’s stimulus measures have been less effective than previously predicted, and the electricity tax was reduced only for industry.

The institutes do not expect another recession—a contraction of economic output for two consecutive quarters—within this year.

Following a 0.3% fall in GDP in the second quarter, minimal growth is expected from the third quarter onwards.

However, according to the forecasts, there will be no stronger momentum after that.

This is not good news for the federal government. Chancellor Friedrich Merz had promised an “economic turning point” and made a return to growth his most important goal.

Germany’s GDP is currently at a level similar to that of 2019, before the coronavirus pandemic and the war in Ukraine.

“The driving forces for a self-sustaining recovery are still weak,” says IfW chief economist Stefan Kooths.

The low probability of this situation changing this year is likely to intensify debates within the federal government about economic policy reforms.

Although the institutes expect more growth in the years after 2025, a closer look at five points in the forecasts shows that this is no reason for enthusiasm.

1. The hope for growth: Revival will only come in 2026

Germany may experience a revival again starting next year.

The IfW expects growth of 1.3% in 2026. The institute’s initial forecast for 2027 is 1.2%.

The RWI forecasts 1.1% growth in 2026 and 1.4% in 2027.

The Ifo Institute expects 1.3% growth next year and 1.6% the year after.

The IWH, however, offers a much more pessimistic forecast, predicting 0.8% growth for 2026 and 0.6% for 2027.

The labor market will be the biggest beneficiary of this. Although the unemployment rate is still at 6.3% this year, it is projected to fall to 5.8% by 2027.

Compared to the forecasts made at the beginning of the summer, this still represents a setback. At that time, the institutes were expecting average growth of around 1.5% for next year.

2. Growth is financed by the state

In addition, next year’s revival will not only be smaller but will also come at a high price.

The federal government is artificially stimulating growth by significantly increasing debt in infrastructure and defense, and through energy price subsidies, super-depreciation for companies, and tax cuts for the restaurant sector and senior citizens.

The IfW estimates that the government will pump an additional 42 billion euros into the economy in this way by 2026. The forecast for 2027 is 22 billion euros.

According to the IfW’s calculations, the government’s expansionary fiscal policy alone accounts for 0.6 percentage points of the expected growth next year. In 2027, this figure will be 0.3 percentage points.

The RWI’s figures are similar: the institute estimates that government stimulus will boost growth by about 0.5 percentage points in both years.

The problem is that increased government spending does not automatically increase the economy’s growth potential. The numerous contracts the government will award may not lead to an expansion of production capacity but could instead cause prices to rise.

Germany is particularly exposed to this situation because the supply of additional labor is shrinking due to demographic change, and bureaucratic burdens and insufficient digitalization make capacity expansion unattractive.

“In the long run, state investments cannot replace private sector activity,” says RWI Chief Economist Torsten Schmidt.

This also overshadows the joy over the falling unemployment rate: new jobs are mostly being created in the government-related service sector, which is significantly less productive than German industry, where job losses continue.

At the same time, government spending is leading to significantly higher borrowing: according to the RWI, the general public deficit ratio—the ratio of the public sector’s annual new debt to economic output—will rise from 2% this year to 3.6% by 2027.

There is another special effect: in 2026, the number of working days will increase significantly, for example, because public holidays will more frequently fall on weekends. This effect accounts for another 0.3 percentage points of the projected growth in 2026.

“Without these effects, the remaining recovery would be extremely weak, so one cannot speak of a self-sustaining upswing,” write the IfW experts.

When these two effects are not taken into account, only 0.4% GDP growth remains as the “real recovery” in 2026.

The adjusted growth for 2027 is 0.8%. According to the RWI’s assumptions, the adjusted GDP change is only 0.3%. In 2027, this rate will be 0.8%.

The state-led recovery is also confirmed by private sector figures. According to the RWI, private sector investment in equipment will decrease by 2.3% in 2025 and will show only a moderate recovery of 2% and 1.7%, respectively, in the following years, despite improved depreciation conditions.

In contrast, government investment in equipment will increase by about 11% to 22% during the same period. Private consumption will not increase by even 1% next year and the year after, partly due to a slowdown in wage growth.

3. Brakes on growth: Underutilization of capacity

Apart from the record level of state orders, the economic environment remains complex.

There are several developments that hinder a “real revival” and cause German companies to produce far less than they currently could. According to Handelsblatt, the underutilization of capacity is among them.

One reason for this is the tariff agreement for exports to the US. The uncertainty surrounding this and the 15% tariffs are negatively affecting Germany’s exports, one of its most important activities.

According to IfW calculations, US tariffs will reduce economic output by 0.3% in 2025 and 2026, which is equivalent to 13 billion euros.

Another risk is the tension in international financial markets. Risk premiums on government bonds have increased significantly in recent days.

4. Industrial capacity is shrinking

On the other hand, an improvement in external conditions alone will not be enough for Germany to experience a real revival again.

The reason for this is that, parallel to the underutilization of the German economy’s capacity, the structure of the economy is also changing.

Production capacities are not only being underutilized but are apparently being permanently reduced. This means that even if the German economy returns to normal capacity utilization, higher growth rates may no longer be possible.

This is particularly true for industry. The value added of industry is currently more than 4% below the 2019 level. The IfW writes, “In this context, the extremely low capacity utilization may indicate that there is less room for economic recovery and instead points to a further reduction in production capacity.”

According to the RWI, another piece of evidence for this is that although companies’ business expectations for the next six months have recovered slightly, they still assess their situation as poor.

According to the economists, companies are pinning their hopes more on government programs than on an improvement in local conditions.

5. Reforms to slow down structural change

According to the institutes, “structural reforms” that allow for capacity development are necessary to stop this trend.

If this happens, the numerous government contracts resulting from new debt could also ensure that this leads to sustainable growth.

The economists primarily recommend reforms for the social security systems and energy policy. RWI expert Schmidt says, “The government’s spending programs can stabilize the economy in the short term, but they do not solve the fundamental competitiveness problems of the German economy.”

In social policy, it is argued that systems should be designed to encourage more citizens to work in order to slow the decline of the working population for demographic reasons.

According to the institutes, the priority in the energy sector should be to lower energy prices in Germany and increase the security of supply to stop the migration of companies to countries with better energy resources.

Experts believe that structural regulations in the energy market are more important than energy price subsidies.

Europe

Morawiecki launches Rozwój Plus movement following high-profile split from Poland’s PiS

Published

on

The first major event organized by the political circle of Mateusz Morawiecki, following his split from Law and Justice (PiS), is set to take place in Warsaw’s Praga district.

The gathering comes just days after the former prime minister and dozens of his allies severed ties with the national-conservative PiS.

The move also led to Morawiecki’s resignation from the presidency of the European Conservatives and Reformists (ECR) group in the European Parliament.

Organized by his Rozwój Plus (Development Plus) movement, the conference—dubbed “Morawiecki’s barbecue” due to the prominent inclusion of charcoal-grilled kiełbasa sausages—will mark a significant moment in Polish conservative politics.

The event will bring together key figures from the emerging movement alongside featured guests, including former world chess champion Garry Kasparov and General Rajmund Andrzejczak, the former chief of the General Staff of the Polish Armed Forces.

The gathering will offer Morawiecki’s camp an opportunity to present a political vision distinct from that of the current PiS leadership.

“Poles care about the fight for a strong Poland, their wallets, their jobs, housing, development, identity, culture, the Christian faith, and the defense of the cross hanging in the Sejm,” Morawiecki said this week. “These are our principles; this is our faith.”

Discussions will focus on demographics, security, and the politics of memory—topics that have grown increasingly sensitive amid recent tensions in Polish-Ukrainian relations.

While Morawiecki describes Rozwój Plus as an “expert group and think tank,” its political ambitions are becoming increasingly clear.

A new parliamentary group established on Wednesday brings together 40 deputies and one senator, providing his allies with an official platform in parliament and a base from which to challenge PiS.

“This is a threat to us,” Mateusz Kurzejewski, a PiS politician and spokesperson for Przemysław Czarnek’s prime ministerial campaign, told Euractiv. “After all, this is an initiative that reduces our chances of victory, though it does not eliminate them entirely. Therefore, we will continue to work hard.”

However, whether Morawiecki can successfully reshape the Polish right remains uncertain.

An SW Research poll commissioned by Onet revealed that 32.9% of respondents would consider voting for a party led by the former prime minister.

The strongest potential support comes from voters who already align with the right. Among respondents currently close to PiS, 14% said they would consider supporting Morawiecki, while 7.1% of those aligned with the further-right Confederation held the same view.

The initiative could also draw limited support from the ruling camp. Approximately 7.4% of voters currently supporting Prime Minister Donald Tusk’s pro-EU Civic Coalition, The Left, Poland 2050, or the Polish People’s Party indicated they would not rule out voting for a party led by Morawiecki.

Sources within Tusk’s government believe the split in PiS could benefit the ruling coalition in the short term.

“Particularly because this situation helps soften the impact of the hospital scandal,” one source told Euractiv. “Today, no one is talking about it anymore, and fortunately, no new statements have been made.”

The controversy revolves around allegations that a Warsaw hospital operated a preferential admission system for politicians belonging to the governing Civic Coalition, allowing them to enter a VIP lounge and receive medical treatment ahead of other patients.

Questions have also been raised regarding the salary of the doctor heading the hospital’s emergency department, who is reportedly linked to Tusk’s party.

Yet the same source warned that Morawiecki’s departure may have little long-term impact on the Civic Coalition.

They argued that PiS possesses a fiercely loyal electorate, whereas enthusiasm for Rozwój Plus could prove temporary.

“Look at the IBRiS poll for Rzeczpospolita,” another source said. “70% of PiS voters say they are voting for their ideal party. This core electorate accounts for about 70% of PiS’s current voters.”

A similar perspective prevails within PiS, where politicians contend that Morawiecki is chasing a voter base that may be too small to sustain a new party.

Speaking to Euractiv, Kurzejewski said:

“People do not want to vote for politicians who have been excluded from PiS. As for Law and Justice voters, they do not want to vote for those who betrayed them. That is why this project means Rozwój Plus will fail to clear the electoral threshold.”

Today’s event will therefore serve as an early test of whether Morawiecki can translate curiosity and institutional support into lasting political clout—or whether his departure will become merely another short-lived fracture on Poland’s crowded right wing.

Continue Reading

Europe

Ceuta migration crisis sparks diplomatic row as Italy demands Spain’s suspension from Schengen

Published

on

An influx of thousands of migrants entering Spain from neighboring Morocco has plunged the autonomous enclave of Ceuta into chaos since Wednesday, prompting fresh backlash against Prime Minister Pedro Sánchez’s immigration policies.

Local authorities warned on Wednesday that an increasing number of migrants were reaching Ceuta by sea.

Juan Jesús Vivas, the president of Ceuta, told reporters that the situation constituted “an absolute humanitarian and social emergency” and demanded that the central government take action.

The situation escalated further on Thursday as thousands of people entered Ceuta by land and sea, overwhelming reception centers.

Videos shared online showed individuals using wetsuits and life jackets to swim to shore.

In a statement posted Thursday on X, Sánchez announced that he was working with Moroccan authorities to restore order as quickly as possible and promised an immediate response.

The border chaos erupted just weeks after the Spanish Supreme Court issued a ruling preventing the direct deportation of migrants arriving by sea.

Sánchez’s political rivals laid the blame for the crisis directly on the prime minister. Santiago Abascal, leader of the right-wing Vox party, characterized the events as an “invasion,” while Alberto Núñez Feijóo, leader of the center-right People’s Party (PP), was also among those condemning the prime minister.

The developments drew additional criticism from anti-immigration figures across Europe, including Alice Weidel, co-leader of Alternative for Germany (AfD), and Manfred Weber, chairman of the European People’s Party (EPP), the largest group in the European Parliament.

“This proves one thing: the Migration Pact and return regulations must be put into force today, not tomorrow. Furthermore, Frontex must be strengthened,” Weber wrote.

Tensions have remained high in Spain since the Sánchez administration launched a program enabling undocumented migrants to apply for legal status and remain in the country. More than one million people have applied under the scheme.

This represents the most severe border crisis to hit Ceuta since 2021, when at least 8,000 people entered the territory from Morocco.

The autonomous Spanish cities of Ceuta and Melilla are the only EU territories sharing a land border with Africa.

Italian leaders demand Spain’s expulsion from Schengen

Meanwhile, the fiercest reaction to the migration crisis in Spain emerged from Italy. Top Italian politicians demanded that Spain be expelled from the Schengen Area as tensions continued to escalate.

Italian Prime Minister Giorgia Meloni said in a statement on X: “The images coming from Ceuta are shocking and demonstrate once again that uncontrolled illegal migration poses a real threat to the security of Europe’s borders.”

Meloni added that Italy was prepared to act, “including through extraordinary measures,” to protect its borders and guarantee the safety of its citizens.

Together with Deputy Prime Minister Matteo Salvini and Foreign Minister Antonio Tajani—the most senior ministers representing parties in the Italian right-wing coalition—Meloni demanded the suspension of the Schengen Agreement or the exclusion of Spain from the border-free zone.

Under the accord, individuals can travel freely between 29 signatory European countries.

However, several member states have reinstated checks at certain borders, as permitted under the agreement, citing migration risks.

Italy had previously temporarily reintroduced controls on its border with Slovenia to prevent smuggling and terrorism.

Tajani went beyond calling for Spain’s exclusion from Schengen, attributing responsibility for the events in Ceuta to the immigration policies of Spanish Prime Minister Pedro Sánchez, who had promised to legalize hundreds of thousands of undocumented migrants.

The minister characterized the policy as “profoundly wrong” and claimed it provided “an incentive for human trafficking.”

The remarks provoked a sharp reaction from Spanish Foreign Minister José Manuel Albares, who summoned the Italian ambassador to account for Tajani’s statements.

Replying to Tajani on X, the Spanish minister wrote: “This message is unbefitting the foreign minister of a partner and friendly country from whom we expect European solidarity, not partisan demagogy.”

Separately, European Commissioner for Migration Magnus Brunner, who is also an EPP member, stated that the European Commission supports Spain in protecting the integrity of its borders, including Ceuta, and is in contact with Spanish Interior Minister Fernando Grande-Marlaska regarding the matter.

A spokesperson stated that the Commission welcomed “the close cooperation established between Morocco and Spain to combat these migratory flows and to ensure the swift return of individuals who entered Ceuta illegally, in accordance with applicable rules.”

“When it comes to our cooperation with partner countries, Morocco is a key and reliable partner for the EU. In recent years, we have intensified our cooperation in the areas of migration and border management, as well as the fight against smuggling. We are currently working to turn our relations into a comprehensive and strategic partnership,” the spokesperson added.

Continue Reading

Europe

Rome’s hesitation over SAFE defense allocation draws frustration across EU

Published

on

Italy is delaying the execution of a €14.9 billion loan agreement under the European Union’s SAFE defense program, a hesitation that is preventing other member states from accessing unallocated funds.

The Italian government has failed to finalize the exact amount it intends to borrow due to an ongoing energy crisis and internal political debate, effectively holding other European nations “hostage” ahead of a year-end deadline for fund redistribution, according to a report by Euronews.

Rome had previously requested €14.9 billion in loans—an application that was swiftly approved by both the European Commission and the Council of the European Union. However, the administration has yet to issue a final decision regarding the exact amount it will draw down.

Italian Foreign Minister Antonio Tajani stated this week that his country has “reserved” the full €14.9 billion as a maximum threshold.

Tajani noted that the government will only determine the final loan volume toward the end of the year, adding that he expects the eventual figure to range between €6 billion and €9 billion.

Eastern bloc frustrates over indecision

Rome’s reluctance is causing growing irritation across Europe, Euronews reported. While 17 EU member states have completed their formal agreements with the European Commission, they remain unable to access unclaimed funds because of Italy’s position.

Eastern flank countries, including Poland and Lithuania, are facing particular constraints as they seek additional resources beyond their initial allocations.

Under SAFE framework regulations, all unspent resources must be redistributed by the end of the year. Euronews reported that if Italy continues to delay, the European Commission could formally restrict Rome’s application in September, opening the remaining pool of approximately €10 billion to applications from other member states.

The Security Action for Europe (SAFE) operates as an EU financing mechanism designed to provide low-interest loans to help member state governments bridge gaps in their military capabilities and maintain continued support for Ukraine.

Approved by EU ambassadors in May last year to support the bloc’s rearmament, the SAFE loan facility has a total capacity of €150 billion.

The program forms part of the broader €800 billion “ReArm Europe” initiative announced by the European Commission in March.

Energy crisis and domestic politics stall progress

Italy’s cautious approach stems from a combination of domestic political pressures and economic factors. The country is contending with the impact of rising energy costs linked to the closure of the Strait of Hormuz, leading the Italian government to request fiscal flexibility from the EU to handle energy expenditures.

Concurrently, Italy’s ruling coalition—comprising Fratelli d’Italia (Brothers of Italy), Lega (League), and Forza Italia—faces intensifying pressure from its far-right wing, which has criticized increased defense spending ahead of upcoming elections. Italy must hold its next parliamentary elections no later than Dec. 22, 2027.

Euronews previously reported in May that despite reserving €14.9 billion under the SAFE program, Rome subsequently decided to request only €4 billion to €5 billion to cover existing signed contracts.

Prime Minister Giorgia Meloni and Foreign Minister Tajani justified the move by emphasizing the need to prioritize the energy crisis. Rome missed the deadline to submit its SAFE projects after requesting budget flexibility from Brussels for energy spending.

“We cannot tell our citizens that there is only money for defense,” Meloni said regarding the situation.

Italian daily La Repubblica also reported persistent disagreements between Meloni and other EU leaders concerning Ukraine. At the end of June, Germany’s Frankfurter Allgemeine Zeitung (FAZ) reported that a draft text intended for consensus at the NATO Summit in Ankara envisioned maintaining annual support for Kyiv at €70 billion through 2027, matching the 2026 commitment level.

However, Italy withheld its approval for the draft, objecting to long-term financial commitments of that scale for Kyiv.

Continue Reading

MOST READ

Turkey