German economic institutes raise growth forecasts

Two German economic institutes, IfW and RWI, have revised their 2024 growth forecasts upwards to 0.3% for the German economy, citing a stronger-than-expected first quarter, with IfW also raising its 2025 forecast to 1.6%. RWI anticipates 1.5% growth in 2026, noting a gradual recovery in the second half of the year despite trade policy uncertainties, and emphasizing the need for government action following a recent 46-billion-euro tax relief package aimed at stimulating the economy.

Analysis

The German economy is exhibiting signs of recovery, with two prominent economic institutes, IfW and RWI, upwardly revising their 2024 growth forecasts to 0.3%, a notable shift from IfW's prior expectation of stagnation. This improved outlook is largely attributed to a stronger-than-anticipated first quarter, which saw the economy expand by 0.4%. Looking ahead, IfW projects a more robust growth of 1.6% for 2025, an increase from its previous 1.5% forecast for 2026, while RWI now forecasts 1.5% growth for 2026. This nascent recovery is expected to gain momentum in the second half of the year, supported by significant fiscal measures, including a recently approved 46-billion-euro tax relief package and planned increases in government spending. However, economists caution that trade policy uncertainties continue to pose a near-term challenge, underscoring the importance of the effective implementation of government stimulus measures to solidify the positive trend.

Key Decisions for Investors

• Investors may consider a moderately more constructive stance on German-exposed assets, given the revised growth outlook and supportive fiscal policies.
• Monitor the execution and economic impact of the German government's 46-billion-euro tax relief package and spending initiatives, as their success is crucial for sustaining the recovery.
• Remain attentive to developments in international trade policy, as these present a key uncertainty that could temper the positive economic trajectory for Europe’s largest economy.