Germany's Ifo institute cuts 2025 economic growth forecast to 0.2%

BERLIN (Reuters) - Germany's Ifo institute cut its forecast for economic growth in Europe's largest economy to 0.2% on Monday, citing subdued consumer sentiment and companies' reluctance to invest.

Some improvement is expected next year when growth is forecast to rise by 0.8%, said Ifo.

Ifo had forecast in December that the economy would grow by 0.4% this year if it fails to overcome structural challenges.

Ifo added that there were some forecast risks in light of upcoming economic policy decisions in Germany and the United States.

The latest forecast was completed on Thursday, according to Ifo.

That was the day before German chancellor-in-waiting Friedrich Merz said he had secured the crucial backing for a massive increase in state borrowing, clearing the way for the outgoing parliament to approve the historic deal this week.

"The German economy is stuck. Despite a recovery in purchasing power, consumer sentiment remains subdued and companies are also reluctant to invest," said Timo Wollmershaeuser, head of forecasts at Ifo.

Germany became the only country in the Group of Seven (G7) wealthy nations to post a contraction for two consecutive years last year.

Industry in particular is facing weak demand and increasing international competition, in addition to the considerable risks posed by political uncertainties in the U.S., said Ifo.

The German export industry could be hit especially hard by U.S. tariff increases on European products, added Ifo.

(Reporting by Miranda Murray, editing by Thomas Seythal)