On 12 February 2026 the IMF issued a report following consultations with Germany under Article IV of the IMF’s articles of agreement.
The economic shocks in recent years and weak underlying productivity growth contributed to two years of negative growth in 2023 and 2024. The economy began to recover in late 2024, but the pace of recovery has been restricted by trade-related headwinds. The weak productivity growth has in part been due to delayed structural reforms and increasing competition in export markets.
Economic growth will be increased by the planned fiscal easing in 2026/27, and the effects of monetary loosening are expected to increase growth in the next few years. In the medium term, Germany continues to face a difficult growth outlook. Higher public investment is expected to provide a boost to medium and longer-term productive capacity, but problems will arise from population aging, with the steepest decline in working-age population of any G7 economy over the next five years. Productivity growth is expected to be modest, unless further domestic and EU reforms improve economic efficiency and promote innovation.
The IMF report agrees that measures should be taken to stimulate the economy and close the negative output gap. They recommend targeted measures, such as higher high quality public investment and reductions in high effective marginal income tax rates, which would help raise the economy’s longer term potential growth. Public investment should be strengthened to maximize the impact on growth.
The IMF agrees that it is important to implement fiscal adjustment measures over the medium term to counter the pressure from rising aging related and defence expenditure and safeguard public investment. Growth friendly options include sectoral spending reviews to identify savings; cuts in environmentally harmful subsidies; and further pension reforms to encourage longer working lives. Further structural reforms are required to support growth.
The labour supply could be increased by improving childcare access; lowering the effective marginal income tax rates for second earners and lower income households; and better integration of immigrants into the labour force. More reforms to support innovative firms could include revising the tax rules to provide more support for new enterprises. Other reforms could cut regulation; expand digital infrastructure and skills; and boost vocational training.
