Abstract Following a downturn that lasted several years, a recovery began in Germany during the past year. While export-oriented industry struggled to make headway amid further declines in competitiveness, high geopolitical uncertainty, and persistent trade policy burdens, the recovery was driven largely by the domestic economy. The energy price shock triggered by the war in Iran is likely to dampen the recovery in Germany, but not bring it to a complete standstill. This will be ensured by the significantly expansionary fiscal policy, which primarily supports companies in the defense industry and civil engineering. In most of the manufacturing sector, however, the situation remains subdued. Gross domestic product is expected to grow by 0.6% this year and by 0.9% in 2027, compared with a rise of just 0.2% last year. Compared to the Joint Economic Forecast of Autumn 2025, the institutes have thus revised their forecast downward by a significant 0.6 percentage points for the current year and by 0.4 percentage points for the coming year.

Based on a previously established text data-based indicator, the Inflation Perception Indicator (IPI), we analyze the information content of inflation-related media coverage. It is argued that media do not report on inflation in a constant or systematic manner but instead react to specific events, which means that reporting is state-dependent. Using a dynamic extension of the Latent Dirichlet Allocation (LDA) topic modeling approach we examine the salience and framing of inflation in a corpus of 50,000 articles published by major German newspapers between 2001 and 2024. This approach allows to decompose the IPI into dynamic topic-specific subindicators. To analyze the information content of these newly constructed indicators, we estimate a threshold Bayesian Vector AutoRegressive (BVAR) model for variables from a New Keynesian macroeconomic model with two inflation regimes. Our results suggest that the topic-specific IPI subindicators contain different information about price developments. Moreover, we find some evidence that households make different use of this information in high- and low-inflation regimes when adjusting their inflation expectations.

The Joint Economic Forecast project group predicts slight growth in Germany‘s gross domestic product of 0.2 % for 2025. Expansive fiscal policy will stimulate the economy in the next two years. The institutes project growth rates of 1.3 % and 1.4 % for the next two years. Structural problems such as declining competitiveness and demographic change remain. Extensive reform policies are needed to create growth prospects for the German economy. As a guide, the institutes present a twelve-point compass for the “autumn of reforms”.

The German economy is in crisis. Economic policy uncertainty is high in Germany due to the change of government. At the same time, the USA’s protectionist trade policy is weighing on the economy. In addition, the security situation in Europe has deteriorated with the new government in the USA. Against this backdrop, the Bundestag and Bundesrat have fundamentally changed Germany’s financial constitution. Economic activity this year is likely to be determined by the burdens of the new US tariffs and the high level of uncertainty. The economy is also expected to pick up in the coming year due to rising public spending.

Political shocks impact the economy in different ways, depending of their nature. To capture these effects effectively, we present the Uncertainty Perception Indicator (UPI) based on German newspaper content. This approach combines the time-inherent stability of simple counts of articles with the thematic openness and flexibility of topic models. Using the dynamic RollingLDA technique facilitates the close-to-real-time identification of both the magnitude of an uncertainty shock and its specific characteristics. Hence, the UPI could prove highly useful for economic forecasters and policymakers, since it renders possible more timely and targeted policy reactions.Employing a Bayesian VAR approach, we analyze the effects of various UPI shocks on fixed investment and other macroeconomic variables. Our results document the asymmetric nature of uncertainty shocks, as their consequences are dependent on the respective sources of uncertainty. We find that international shocks only have weak effects on the German macroeconomy, while domestic policy shocks prove to be highly significant. These results markedly differ from earlier studies that, in the case of Germany, tend to maintain the opposite.

Abstract Cyclical and structural factors are overlapping in Germany’s sluggish overall economic development. Until recently, there have been more headwinds than tailwinds from both the external and domestic economy. A low momentum recovery is likely to set in after spring. Net immigration has stabilised the labour force substantially; the productivity of immigrants remains subdued though due to integration problems and qualification mismatches. While a mild reform of the debt brake is advisable, a reorganisation of the overall fiscal constitution to better shield municipal investment activity from cyclical budget shortfalls is much more important.

Abstract The German economy has stagnated for over two years, with a slow recovery anticipated in the coming quarters. However, growth is unlikely to reach pre-COVID-19 levels anytime soon. Decarbonisation, digitisation, demographic changes, and heightened competition from China are dampening growth prospects. GDP is projected to decline by 0.1 % in 2024, with increases of 0.8 % and 1.3 % in the subsequent years. Rising private consumption and improving foreign trade are expected to contribute positively to the economic upturn in Germany. Economic policy should prioritise reducing productivity barriers, facilitating structural changes, and lowering political uncertainty to support recovery.

This study analyzes inflation expectation uncertainty and the effect on economic activity. Within a New Keynesian framework, we estimate the effect of an inflation expectation uncertainty shock on the macroeconomy. Inflation expectation uncertainty negatively affects the inflation rate and the output gap, without having a distinct effect on the level of inflation expectations. Second, we provide a theoretical foundation for the effect of inflation expectation uncertainty in a New Keynesian-type model, in which uncertainty affects economic activity via the supply side and the demand side of the economy. The results suggest that the demand channel outweighs the supply channel.

This paper examines the link between political instability and economic growth in 34 advanced economies from 1996 to 2020. First, we use a panel VAR estimated via the System GMM to explore the endogenous relationship between economic growth and political instability and identify transmission channels. Second, we employ an instrumental variable approach, exploiting temperature variation and spillover effects of political instability to establish causality. The results of both approaches indicate that a one-standard deviation shock of political instability significantly and substantially reduces economic output. We find no evidence, however, that economic growth affects political instability.

Abstract The leading economic research institutes have raised their forecast for growth in German economic output in the current year to 0.3%. In the fall of 2022, they were still expecting a decline of 0.4%. The economic setback in the winter half-year 2022/2023 is likely to have been less severe than feared in the fall. The main reason for this is a smaller loss of purchasing power as a result of a significant drop in energy prices. Nevertheless, the rate of inflation will fall only slowly from 6.9% last year to 6.0% this year.

The German economy is in difficult waters. Since the beginning of the coronavirus crisis, there has been no end to the challenges posed by interruptions in production and supply problems. Despite the need for crisis management, politicians have pledged not to lose sight of environmental sustainability. In addition, our community itself must take more responsibility for strengthening the resilience of supply, value and innovation chains. All of this will only succeed with a greater focus on economic performance; this requires a supply-side economic policy. Drawing insight from this crisis will allow for a successful transition management and a comprehensively transformed economy.

The German economy is in difficult waters. Since the beginning of the coronavirus crisis, there has been no end to the challenges posed by interruptions in production and supply problems. Despite the need for crisis management, politicians have pledged not to lose sight of environmental sustainability. In addition, our community itself must take more responsibility for strengthening the resilience of supply, value and innovation chains. All of this will only succeed with a greater focus on economic performance; this requires a supply-side economic policy. Drawing insight from this crisis will allow for a successful transition management and a comprehensively transformed economy.

Abstract According to the Joint Economic Forecast, Germany’s gross domestic product will decline by 0.6% in 2023. This is a strong downward revision of 0.9 percentage points from the forecast made in spring 2023. The most important reason for this revision is that industry and private consumption are recovering more slowly than has been expected in spring. Germany has been in a downturn for more than a year. The sharp rise in energy prices in 2022 put an abrupt end to the recovery from the pandemic. However, wage increases have meanwhile followed the price hike, energy prices have fallen, and exporters have partially passed on their higher costs, so that purchasing power is returning. Therefore, the downturn is expected to subside by the end of the year.

Abstract Potential output is a measure of the longer-term production possibilities of an economy. Since this quantity cannot be observed directly, it must be determined on the basis of assumptions from existing data. The use of a production function was established in the European Commission’s procedure for calculating potential output. However, it is important to capture all drivers of economic growth. In the current EU procedure, total factor productivity (TFP), which is interpreted as a measure of technological progress, is assumed to be exogenous. This means that key drivers of economic growth, in particular research and development (R&D) activities, are not explicitly taken into account. An extension of the production function approach can be derived from the theory of endogenous growth. This would improve the theoretical basis of the potential output estimates.

Potential output is a measure of the longer-term production possibilities of an economy. Since this quantity cannot be observed directly, it must be determined on the basis of assumptions from existing data. The use of a production function was established in the European Commission’s procedure for calculating potential output. However, it is important to capture all drivers of economic growth. In the current EU procedure, total factor productivity (TFP), which is interpreted as a measure of technological progress, is assumed to be exogenous. This means that key drivers of economic growth, in particular research and development (R D) activities, are not explicitly taken into account. An extension of the production function approach can be derived from the theory of endogenous growth. This would improve the theoretical basis of the potential output estimates.

Abstract The German economy is being hit hard by the crisis in the gas markets. Skyrocketing gas prices are drastically increasing energy costs accompanied by a massive withdrawal of purchasing power. This is pushing the German economy into a recession. At the same time, the institutes conclude that there will be no gas shortage in the coming winter under normal weather conditions. Nevertheless, the supply situation remains extremely tight. Against this background, economic output is likely to have already fallen slightly in the third quarter. In the winter half-year, a significant decline is expected due to the rising cost of energy, weakening consumer demand and the weakening global economy.

Zusammenfassung Die deutsche Wirtschaft wird von der krisenhaften Zuspitzung auf den Gasmärkten schwer belastet. Die hochgeschnellten Gaspreise erhöhen die Energiekosten drastisch und gehen mit einem massiven gesamtwirtschaftlichen Kaufkraftentzug einher. Dies dämpft nicht nur die noch unvollständige Erholung von der Coronakrise, sondern drückt die deutsche Wirtschaft in die Rezession. Dabei kommen die Institute für den kommenden Winter zu dem Ergebnis, dass bei normalen Witterungsbedingungen keine Gasmangellage eintritt. Dennoch bleibt die Versorgungslage äußerst angespannt. Vor diesem Hintergrund dürfte die Wirtschaftsleistung im dritten Quartal bereits leicht gesunken sein. Im Winterhalbjahr ist aufgrund der steigenden Kosten für Energie, der nachlassenden Konsumnachfrage und der schwächelnden Weltwirtschaft mit einem deutlichen Rückgang zu rechnen.

Zusammenfassung Die deutsche Wirtschaft steuert durch schwieriges Fahrwasser. Die Auftriebskräfte durch den Wegfall der Pandemiebeschränkungen, die Nachwehen der Coronakrise und die Schockwellen durch den Krieg in der Ukraine sorgen für gegenläufige konjunkturelle Strömungen. Allen Einflüssen gemeinsam ist ihre preistreibende Wirkung.