Global financial institutions, including Goldman Sachs and Nomura, anticipate a turnaround for Germany’s economy in 2025, fueled by increased infrastructure and defense spending. Despite a recent decline in exports, industrial production showed signs of recovery in January, offering hope that Europe’s largest economy is stabilizing after consecutive years of contraction.
Positive Growth Forecasts for Germany and Eurozone
Goldman Sachs has revised its growth projection for Germany, expecting a 0.2% expansion in 2025, while predicting that the euro area’s growth will improve to 0.8%. Nomura suggests that increased government spending could lift eurozone growth by 0.2 percentage points per quarter by the end of 2026.
These forecasts come as Germany’s incoming government plans a nearly trillion-euro borrowing plan to fund defense and infrastructure projects, which is expected to have positive spillover effects on neighboring European economies.
Industrial Production Rebounds Despite Export Slump
Germany’s industrial production rose by 2.0% in January, exceeding analyst expectations and signaling that the sector is bottoming out after prolonged weakness. The increase comes after a revised decline of 1.5% in December 2024, reflecting early signs of stabilization. However, exports fell by 2.5% in January, with shipments to EU countries dropping 4.2%, indicating ongoing global trade challenges.
Infrastructure and Defense Spending to Fuel Economic Recovery
The new German government is expected to loosen fiscal constraints to facilitate large-scale investments in key sectors. Goldman Sachs and Nomura believe this spending will not only strengthen Germany’s economy but also positively impact European trade partners. While some EU nations may face fiscal limitations, Germany’s shift toward higher military and infrastructure spending could lead to increased regional demand.
ECB Rate Cuts Expected to Be Gradual
With Germany’s fiscal expansion reducing pressure on the European Central Bank (ECB) to lower interest rates aggressively, Goldman Sachs and Nomura have revised their rate cut expectations. Goldman now anticipates ECB’s benchmark interest rate to reach 2% by mid-2025, while Nomura expects it to be slightly higher at 2.25%. Both institutions predict fewer rate cuts than previously expected, as economic conditions improve.
Outlook: A Turning Point for Germany’s Economy
While challenges remain, Germany appears to be entering a phase of recovery. Industrial output is stabilizing, government spending is set to drive growth, and financial analysts expect a positive shift in economic momentum. With infrastructure investments and strategic fiscal policies, Germany is positioning itself for renewed economic strength in 2025, marking a potential turning point for the broader European economy.
