Germany's parliament approved a significant spending boost in March 2025, featuring a 500-billion-euro infrastructure fund and changes to borrowing rules for defense investment.

Private consumption and corporate investments have begun to recover, contributing to a positive business climate since the beginning of the year.

Business sentiment has improved, as indicated by a five-month consecutive rise in the ifo Business Climate Index, based on surveys of 9,000 managers.

In the first quarter of 2025, Germany's economy unexpectedly grew by 0.4%, driven by increased exports to the US and higher private consumption and investments.

However, the optimistic forecasts are tempered by the unresolved trade conflict with the US, which poses risks to growth.

The new US tariffs on steel and aluminum imports are expected to significantly impact German exports to the US, potentially causing a decrease in export activity.

If the trade conflict escalates, there is a risk of a renewed recession; conversely, a resolution could lead to higher growth.

Inflation rates are projected to remain stable, with forecasts at 2.1% for 2025 and 2.0% for 2026, while the unemployment rate may slightly decrease.

Despite the challenges, IfW economists expressed optimism, stating that the German economy is seeing 'some light at the end of the tunnel.'

The ifo Institute has revised its economic growth forecasts for Germany, predicting a growth of 0.3% in 2025 and 1.5% in 2026.

A significant driver for this expected economic boost is the new government's growth package, which includes spending increases, tax cuts, and investments.

The coalition plans to expand infrastructure, increase defense investments, and implement tax relief measures, along with reducing energy access costs.