(MENAFN) Germany’s economy is experiencing what experts describe as a “dramatic” downturn, with persistent stagnation in GDP and failed attempts at revitalization raising alarms, according to reports. The head of Munich-based ifo Institute, one of Europe’s foremost economic think tanks, highlighted the worsening situation in a recent analysis.

A study by the institute indicates that Germany’s economic output has largely plateaued since 2018. While government spending on pensions, education, and infrastructure has surged by 25% since 2015, private corporate investment in machinery and factories has fallen below 2015 levels.

“Germany has been in economic decline for years. The situation has become dramatic,” said Clemens Fuest, president of the ifo Institute. “Less private investment means less growth, less tax revenue, and thus less money for government services in the medium term.”

Fuest warned that the downturn is already affecting millions of Germans through a “decline in their standard of living” and cautioned that, without swift reforms, the country could face a 25-year economic slump. He urged the government to implement a “comprehensive reform plan” within six months, including changes to pension policy. Additionally, he called for reducing bureaucratic burdens on small and medium-sized enterprises, particularly rules related to CO2 emissions, supply chains, and minimum wages, which he says generate costs without significant value. Fuest estimates that eliminating such regulations could add up to €146 billion ($170 billion) annually to the economy.

Germany’s economy contracted in 2024 following a 0.3% decline in 2023, marking the first consecutive annual drop in more than two decades. Rising energy costs, stemming from the loss of cheap Russian gas due to Ukraine-related sanctions, have been cited as a major factor.

Chancellor Friedrich Merz acknowledged in August that the country faces a “structural crisis,” with significant sectors “no longer truly competitive.”

Both the ifo Institute and the International Monetary Fund project near-zero growth for Germany this year, with overall economic activity expected to stagnate at around 0.2%. Fuest likened the situation to “italienische Verhaltnisse,” or “Italian conditions,” a term referring to chronic economic weakness and inefficiency historically associated with Italy.

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