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Investing.com -- Deutsche Bank lowered its growth outlook for the German economy on Monday, noting that momentum remained weaker than expected even in the wake of recent fiscal reforms.
The bank now expects Germany’s GDP to expand by only 0.2% in 2025, down from its previous forecast of 0.5%. For 2026, Deutsche Bank reduced its growth projection from 2.0% to 1.5%, matching its outlook for 2027.
According to Deutsche Bank, the fiscal reforms implemented by the German government have not yet stimulated significant activity in the private sector, with the exception of certain areas such as defense.
The latest ifo survey indicates that the improvement in corporate sentiment observed since spring has already stalled.
While order books are not empty and capacity utilization has reached its lowest point, unresolved structural problems continue to dampen investment appetite in manufacturing and construction sectors. Consumer sentiment has shown even less improvement, as news of corporate layoffs and geopolitical tensions persist.
Deutsche Bank maintains its expectation that the federal government will increase spending over the next year and run a budget deficit of at least 3.5% of GDP in 2026. However, the bank noted that without meaningful structural reforms, the government has received less economic impact from its fiscal stimulus announcements than anticipated.
More than half of the bank’s downward revision for 2026 stems from a weaker carry-over effect. The forecast also projects slightly weaker sequential growth in physical investment, which cannot be offset by the rapid growth in intangible investments such as R&D and software, despite these pointing to the future direction of German industry.
Deutsche Bank expressed concerns about private demand "leaking" into imports, particularly from China. Combined with US tariffs, external demand will remain more of a drag than previously assumed.
The bank believes the main growth impulse next year will initially come from public consumption, especially for social expenditures and services related to procurement and infrastructure projects, before shifting toward investment later in 2026.