That factor will likely be reversed over the next few quarters, bringing the growth rate back down in the near term. The institute then warned that if trade troubles with the U.S. escalate again, this risks offsetting positive impulses, and could throw Europe’s largest economy back into recession.
IfW’s President Moritz Schularick was clear that trade policy risks remain “substantial” and that the U.S.’s “erratic” tariff policy continues to fuel uncertainty for German foreign trade.
“We need to find good solutions for all sides, because we can see that all participants are suffering from the uncertainty from trade conflicts,” Economy Minister Katharina Reiche said, hosting a delegation from the Organization for Economic Cooperation and Development in Berlin on Thursday.
The OECD has also become more optimistic about Germany’s near-term growth prospects, projecting gross domestic product growth of 0.4 percent this year and 1.2 percent in 2026.
While the new OECD report on Germany welcomed recent fiscal rule reforms that will allow higher spending on rebuilding defense capacity, while addressing a large infrastructure backlog, the Paris-based think tank urged the government to not just throw money at its problems, but rather enact a slew of structural reforms.
Its proposals include raising spending efficiency, reallocating spending and broadening the tax base.
The OECD also called on Berlin to lighten the administrative burden and regulatory barriers to competition to revive business dynamism, innovation and productivity growth.
It also suggested various measures to support a labor market in crisis due to population aging. These include strengthening incentives for women to reenter the workforce, and for low-paid and older workers. They also advocate for further reducing barriers to skilled migration, as well as improving education, training and adult learning policies.