Germany’s economic future looks uncertain, with forecasts suggesting up to 15 years of stagnation. The Ifo Institute warns that without significant structural reforms and an increase in workforce potential, Germany’s growth could flatline by the end of the decade and even become negative in the 2030s.

Germany has been often described as the “sick man of Europe” again, and some economists warning of a “lost decade” or risks of deindustrialization in energy-intensive sectors.

From Blackout News

More and more forecasts indicate that Germany could face up to 15 years of permanent stagnation. The change of course of the economic institutes is remarkable, because their earlier assessments were long considered too optimistic and had to be regularly revised downwards, which caused them to noticeably lose confidence. Now the warnings are much sharper because the institutions themselves no longer believe in a quick recovery. They point to a persistent weak growth that is structurally burdening Germany as a business location, while a deep-rooted reform backlog increases the risks of a deepening economic crisis. This brings an economic standstill of over a decade and a half closer, which goes far beyond an economic weak phase and is associated with a considerable loss of prosperity (faz: 11.12.25).

Permanent stagnation over 15 years becomes realistic for Germany

The assessments of the economic researchers are unusually clear. The Ifo Institute has not only lowered its growth expectations for the coming years but also reassessed its long-term potential. Ifo head of economic forecasting Timo Wollmershäuser says: “If we don’t get structural reforms and no growth in the workforce, then potential growth will shrink to zero by the end of the decade and tip into negative territory in the 1930s.” This would make permanent stagnation the new normal, which would be historically unprecedented.

This would have concrete consequences for the population, because per capita incomes would hardly increase. At the same time, the number of pensioners is growing, which is why Wollmershäuser emphasizes: “The ticking bomb is the social system.” Without economic dynamism, pensions, care and health come under considerable financial pressure, while political leeway becomes narrower.

Reform backlog deepens Germany’s economic crisis for years

A central obstacle remains the reform backlog, which has been consolidating for years. Companies criticize complex procedures, long approval times and high site costs. These factors are exacerbating the economic crisis in Germany, even if it is not abrupt but gradual. Many companies are reluctant to invest or prefer alternatives abroad because they do not see any reliable framework conditions in this country.

Economists are also critical of current policy measures. Consumption-oriented relief causes high costs, but hardly creates any additional added value. As a result, the weak growth remains, while the political stalemate delays key decisions. For Germany as a business location, this means a gradual loss of attractiveness.

Permanent stagnation burdens growth and social systems in the long term

The long-term effects of permanent stagnation extend far beyond economic cycles. It is already evident today that government spending alone does not create sustainable dynamics. According to the Council of Economic Experts, even extensive debt programs provide only limited impetus. The economic imbalance remains because productivity and private investment are not increasing sufficiently.

The situation is particularly critical for the social security systems. Rising expenditures meet stagnating revenues, widening funding gaps. In a phase of low momentum, there is a lack of the buffer to cushion demographic burdens, which further exacerbates the economic crisis in Germany.

Weak growth and demographics are weighing on Germany as a business location

Demographic change is further exacerbating the structural problems. In the coming years, millions of people will leave the labour market, while the number of people in employment will fall. This development exacerbates the weak growth because there is a shortage of skilled workers and innovation processes are slowing down. At the same time, the reform backlog will become more difficult to resolve politically, as the social acceptance of far-reaching changes decreases.

Economic researchers are therefore calling for clear incentives for longer working lives and a targeted strengthening of innovations. New ideas must be turned into marketable products more quickly in order to make Germany more competitive again as a business location. Without this step, there is a risk that the low momentum will become entrenched.

Trust decides whether Germany loses 15 years as a business location

Whether Germany manages to reverse the economic trend depends largely on confidence in its ability to reform. At present, this confidence has been tarnished because political conflicts and contradictory signals are unsettling investors. If the reform backlog persists, the permanent stagnation could become entrenched for many years. However, if a credible change of course succeeds, there are still chances of new momentum.

The coming years will therefore decide whether Germany will enter a long phase of low development or whether the economic crisis can be overcome. There is a lot at stake for politics, business and society.