Europe’s top think tank says Germany’s economic decline is worsening
(MENAFN) Germany’s economy is experiencing a “dramatic” downturn after years of stagnating GDP and unsuccessful recovery efforts, according to the head of Munich-based ifo Institute, a prominent European economic think tank.
A recent study by the institute shows that German economic output has remained largely flat since 2018. Government spending on pensions, education, and infrastructure has risen by 25% since 2015, while corporate investment in machinery and factories has fallen below 2015 levels.
Clemens Fuest, president of the ifo Institute, warned that the situation could push Germany toward “italienische Verhaltnisse” – or “Italian conditions,” a term describing chronic economic stagnation and structural inefficiency historically associated with Italy.
“Germany has been in economic decline for years. The situation has become dramatic,” Fuest told reporters. “Less private investment means less growth, less tax revenue, and thus less money for government services in the medium term.”
He noted that the economic slowdown is already affecting millions of Germans through a “decline in their standard of living” and cautioned that, without urgent reforms, the country could face a 25-year economic slump.
Fuest urged the government to develop a “comprehensive reform plan” within six months, including changes to the pension system. He also recommended cutting red tape for small and medium-sized businesses, such as eliminating documentation requirements related to CO2 emissions, supply chains, and minimum wages, arguing that such measures could boost the economy by up to €146 billion ($170 billion) annually.
Germany’s economy contracted in 2024 following a 0.3% decline in 2023, marking the first consecutive annual drops since the early 2000s. Rising energy costs—linked to the loss of inexpensive Russian gas due to Ukraine-related sanctions—have been cited as a major factor. Chancellor Friedrich Merz acknowledged in August that the economy faces a “structural crisis,” with key sectors “no longer truly competitive.”
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