Germany’s economy is losing momentum, according to Clemens Fuest, president of the Munich-based Ifo Institute for Economic Research.
In a recent analysis of national spending and investment trends, Fuest painted a sobering picture of the country’s financial trajectory, warning that rising state expenditure and falling private investment are eroding long-term prosperity.
State spending surges, private investment stagnates
The Ifo study finds that public consumption has increased by roughly 25% since 2015, while business investment has dropped back to levels seen a decade ago.
This imbalance, Fuest argues, reflects a dangerous shift in Germany’s economic structure — one that could lead to slower growth, lower tax revenues, and reduced capacity for public services.
“Germany has been in economic decline for years,” Fuest reportedly told national media. “The situation has become dramatic. As public spending continues to rise and private investment falls, our prosperity is at risk.”
“Italian conditions” looming if reforms fail
According to the Ifo president, millions of citizens already feel their living standards declining, while wealth gaps widen. Without decisive reforms, he warned, Germany could face “conditions similar to Italy” — a reference to chronic stagnation, low productivity and heavy bureaucracy.
The institute is calling on the federal government to present a comprehensive reform plan within the next six months — one that goes well beyond the current coalition agreement.
Fuest believes the plan should be finalized by spring 2026 and include far-reaching fiscal and social policy changes.
Ending the “Mütterrente” and cutting red tape
Among the most controversial proposals is a call to end the “Mütterrente” — a pension supplement for mothers — to help curb rising contribution costs.
At the same time, Fuest urges massive deregulation for companies, citing excessive reporting requirements related to CO₂ emissions, supply chains and minimum wage compliance.
These measures, he argues, consume resources without adding productivity, and their removal could unlock up to €146 billion in additional economic output annually.
Radical reforms or long stagnation
The Ifo Institute’s message is clear: without deep structural reforms, Germany risks sliding into a period of prolonged economic stagnation.
Fuest’s warnings echo broader concerns from economists and industry groups who say bureaucratic pressure, high taxes and energy costs are undermining the country’s competitiveness.
While the federal government continues to emphasize stability and social equity, experts warn that the window for decisive action is closing.
Germany, once known as Europe’s economic powerhouse, now faces a defining question: can it reinvent itself before it’s too late?
