(MENAFN) According to reports, the International Monetary Fund (IMF) warns that Germany faces a difficult medium-term growth outlook unless it implements bolder domestic and EU-level reforms.

The IMF highlights that after several years of economic shocks and slow growth, Germany’s recent reform of its fiscal rule has laid the groundwork for recovery, driven by a gradual rise in domestic investment and consumption. However, it stresses that challenges remain due to rapid population aging and weak productivity growth, making it essential to use fiscal space effectively to boost the economy’s long-term production capacity.

The IMF recommends complementing fiscal measures with structural reforms that foster innovation and digitalization, reduce bureaucracy, ease labor supply constraints—particularly among women, older workers, and immigrants—and enhance European economic integration.

This includes removing barriers to cross-border trade and investment and better integrating capital and energy markets. The fund also stresses the importance of prudent financial sector policies to mitigate risks.

Highlighting downside risks, the IMF points to rising geopolitical tensions, trade conflicts, and commodity price volatility. It projects Germany’s economy to grow by just 0.2% this year, attributing weak growth to stalled structural reforms and limited productivity gains amid rising export competition.

The IMF notes that the debt-brake reform and planned fiscal and monetary measures in 2026–2027 are expected to gradually lift growth to 1% in 2026 and 1.5% in 2027. Still, it warns, “without further bold reforms both domestically and at the EU level, Germany still faces a persistently challenging medium-term growth outlook.” Additional risks include slower domestic productivity growth, delays in public investment projects, and ongoing labor shortages, all of which could further limit growth and strain public finances.

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