By Maria Martinez
BERLIN (Reuters) -The Leibniz Institute for Economic Research RWI cut its economic outlook for Germany, warning on Thursday that growth in Europe’s biggest economy is increasingly reliant on government spending as private investment stays weak.
RWI now expects GDP to expand by 0.2% in 2025, with growth of 1.1% in 2026 and 1.4% in 2027. The figures mark downward revisions of 0.1 and 0.4 percentage points versus its summer projections.
From 2026, fiscal impulses worth about 0.9% of GDP annually are set to do most of the lifting, the institute said, warning that government spending cannot permanently substitute for private investment.
“The government spending programs can provide short-term stabilization, but they do not solve the fundamental competitiveness problems of the German economy,” said RWI chief economist Torsten Schmidt.
The general government deficit is seen rising from roughly 116 billion euros ($135.80 billion) to just under 158 billion euros in 2026 and to 170 billion euros in 2027.
Unemployment is expected to stay above 6% in the forecasts horizon, but is seen falling from 6.3% in 2025 to 6.1% in 2027.
Inflation is expected to oscillate around the European Central Bank’s 2% target, falling to 1.8% in 2026 from 2.0% this year, before returning to the 2.0% target in 2027.
($1 = 0.8542 euros)
(Reporting by Maria MartinezEditing by Madeline Chambers)
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