There was this moment last year when an almost forgotten feeling emerged in Germany: confidence. It was the spring of 2025 and the new federal government had only just been formed. In a quick move before taking office, the Union and the SPD decided to weaken the debt brake and invest hundreds of billions of euros in infrastructure and armaments in the future. Chancellor Friedrich Merz promised rapid reforms and there was hope that growth would finally return after a good two and a half years of economic stagnation. And now?
All that’s left is a zero before the decimal point. According to preliminary calculations, the economy will not have even grown by one percent in 2025. And looking into the new year brings little confidence; the economic forecasts from the leading economic institutes in Germany all give little reason for hope. “There is no sign of optimism anywhere,” says Klaus Wohlrabe, who heads the economic surveys at the Munich Ifo Institute, in which thousands of companies are surveyed on various aspects every month. “Hardly any industry is really optimistic about 2026,” says Wollmershäuser.
A good quarter of German companies expect business to deteriorate in 2026, showed the latest ifo survey. Almost 60 percent expect that their economic situation will not change this year. Only about 15 percent hope for an improvement. That doesn’t sound like a particularly euphoric start to the new year. And yet you have to differentiate between the most important sectors of the economy in order to get a more precise picture. After all, the economic researchers had previously assumed that the special fund Federal Government Over 500 billion euros will have a noticeable growth effect on the economy. Even if the money is to be spent over a period of twelve years, investments could trigger a new dynamic.
A maximum of 0.8 percent growth through special funds
The Council of Experts for the Assessment of Overall Economic Development, better known as the Economics, analyzed this effect in more detail. In their autumn report The scientists on the panel looked at how the federal government has so far planned to use the money from the special fund and what this would achieve.
The verdict is not very encouraging. The resources would “not just for additional investments”but is used to “significant parts to finance consumption”, i.e. current expenditure in the government’s actual core budget. This results in “only a small positive effect” on economic growth in Germany. If things go well, the gross domestic product could only grow by between 0.4 and 0.8 percent.
It is also unclear how quickly the money will reach the companies that are supposed to build the new roads or school buildings. Subsidies and tax cuts, which are financed directly from the special funds, can be implemented quickly. says the Kiel Institute for the World Economy. Current projects could also be moved from the core budget to the special fund in order to advance them more effectively. According to the Kiel Institute, additional investments, which “experience shows require a certain amount of lead time,” are only likely to “play an increasing role in the course of 2026.”
The construction and real estate industry and its downstream sectors, such as companies that produce building materials and tools, are particularly likely to benefit. There could also be positive effects for the mechanical engineering and electrical industries if road construction companies have full order books and order new equipment. The first signs of this development emerged at the end of last year. According to the Federal Statistical Office Production in mechanical engineering increased by almost three percent in October, driven by stronger domestic demand, which rose for the second month in a row.
Investment booster seems to be working
This is probably also due to the so-called investment booster, which the federal government decided on in the summer of 2025 and which creates cheaper depreciation options for companies that invest in new machines or systems. You can offset up to 30 percent of the acquisition costs against your profit in the year of purchase. In the second and third years, up to 30 percent of the remaining value should be claimed again. Apparently this has already had a noticeable effect.
However, these developments primarily affect domestic demand; the expected impulses from the special fund are also likely to stimulate domestic consumption. However, exports are declining, especially to China and the USA. In the first nine months of last year, German companies sold a good twelve percent fewer goods to China than in the previous year; The automotive industry is particularly affected. Exports of motor vehicles and vehicle parts fell by more than a third. “Nevertheless, a recovery in German exports of goods to the United States is questionable, as the higher US tariffs now in force and the appreciation of the euro continue to have a negative impact,” states the Kiel Institute for the World Economy.
So far it is not foreseeable that German industry will quickly get out of its export misery, even if most experts at least expect that things will at least not continue to decline. However, this continues to put a strain on the economy as a whole. “It is overall disappointing that we cannot expect more than one percent growth for the coming year,” says Moritz Schularick, President of the Kiel Institute. And this despite the fact that “the federal government is taking on high levels of debt and wants to increase government investments in infrastructure and defense.” The many structural problems in the social system, excessive bureaucratization and the lagging behind in artificial intelligence and other modern technologies meant that Germany’s economy continued to stall.
