FILE PHOTO: The container ships Maribo Maersk and Bianca Rambow sit moored at a terminal wharf in Bremerhaven, Germany, August 13, 2025. REUTERS/Leon Kuegeler/File Photo

By Klaus Lauer and Holger Hansen

BERLIN (Reuters) -Five leading German economic institutes have nudged their 2025 growth forecast for Europe's largest economy up to 0.2%, sources familiar with the matter told Reuters on Tuesday.

The institutes had predicted 0.1% growth this year and 1.3% next year in their previous April forecast.

Plans by the new government to sharply increase spending on infrastructure and defence are expected to prop up growth in the longer term but the economy will struggle for now, buffeted by the U.S. administration's global trade war.

SPENDING SPREE TO SUPPORT GROWTH IN 2026

For next year, the institutes kept their forecast of 1.3% growth, as government spending should help the economy to gain momentum.

The forecasts include for the first time a prediction for 2027, when the economy should expand by 1.4%.

German Chancellor Friedrich Merz took office in May promising to revive stagnant growth.

While it was clear that his promised rise in public spending would take time to benefit the economy, there is a growing sense that the promised reforms are slower and less far-reaching than initially expected.

The economists from these institutes are calling for massive structural reforms by the new government in order to make the economy fit for the future in the long term.

The institutes will present their new joint report to the government on Thursday. The economy ministry incorporates the combined estimates from the institutes into its own predictions.

The last government forecasts, published in April, foresee stagnation for this year and 1.0% growth for 2026. The government will update its forecasts in autumn taking into account the last insights from the economic institutes.

The Organisation for Economic Cooperation and Development cut its economic outlook for Germany on Tuesday, expecting GDP to expand by 0.3% in 2025 and 1.1% in 2026, 0.1 percentage points down from its previous projections in both years.

TRADE BLOW

Prior forecasts had factored in initial U.S. tariffs on steel, aluminium and cars, but not the 15% tariff on other goods.

Export-dependent Germany is the only G7 economy that has contracted for the last two years.

Germany has struggled to regain momentum this year, with the economy contracting by 0.3% in the second quarter compared with the first three months of the year, as U.S. demand slowed following months of buying ahead in anticipation of U.S. President Donald Trump's new tariffs.

The weak economy has taken its toll on the labour market and in August the number of unemployed people in Germany passed 3 million for the first time in a decade.

(Reporting by Klaus Lauer and Holger Hansen, Writing by Maria Martinez and Miranda MurrayEditing by Rachel More and Gareth Jones)