Germany launches reform measures to boost economy
Recently, the ruling coalition composed of the German Union Party and the Social Democratic Party reached a consensus on three key areas of reform, namely building a new basic social security system, optimizing the pension system, and upgrading transportation infrastructure. The series of measures aim to promote the early recovery of the German economy from difficulties.
In terms of social welfare, Germany's citizen allowances will be replaced by a new "basic security fund". The original intention of establishing the citizen allowance system was to provide support for the long-term unemployed and those in need of assistance in the country, but in the actual implementation process, it has been abused. Germany will significantly tighten the rules for receiving subsidies and standardize the distribution process more strictly through this reform.
In terms of pension reform, the German federal government will introduce an "active pension" system, which stipulates that elderly people who have reached the statutory retirement age but still choose to continue working can enjoy a tax-free income limit of up to 2000 euros per month. This preferential policy is tentatively planned to be officially implemented from January 1st next year.
In terms of transportation infrastructure, the German federal government plans to allocate approximately 3 billion euros to support the electric vehicle purchase subsidy support program before 2029. The government will also allocate an additional 3 billion euros for the construction of transportation infrastructure, including roads and railways.
Faced with challenges such as high energy prices, declining manufacturing, and unfavorable external environment, the German economy has been shrinking for two consecutive years. The joint economic forecast report recently released by five major economic research institutions, including the German Institute for Economic Research, the Munich Institute for Economic Research, the Kiel Institute for World Economic Research, the Halle Institute for Economic Research, and the Leibniz Institute for Economic Research, believes that the German economy is facing significant downside risks. The report analysis shows that the imposition of tariffs by the United States has had a serious impact on the global economy, and the demand for German goods in the international market has weakened, making it difficult for exports to become a driving force for Germany's economic recovery.
A report from the Leibniz Institute for Economic Research shows that the output of energy intensive industries in Germany is declining, with output in the spring of 2025 decreasing by nearly 20% compared to 2022 levels. According to a survey conducted by the polling firm Ahrensbach Institute, 83% of surveyed companies believe that business development planning in the coming months will become more difficult; 63% of companies are delaying or planning to delay investments.
Currently, the German economy is gradually emerging from a downturn, but there is an urgent need to implement more measures to consolidate the momentum of recovery. After seasonal and weekday adjustments, Germany's industrial output in September increased by 1.3% month on month, showing improvement compared to August. The statement from the German Federal Ministry of Economy and Energy stated that the rebound in industrial output in September was mainly affected by fluctuations in the automotive industry and cannot be seen as a fundamental sign of recovery in German industry. A report from the Kiel Institute for World Economy predicts that private consumption in Germany will rebound again, construction investment is slowly recovering, and the labor market will also improve next year. At present, major German companies are gradually improving their expectations for the future, hoping that the government's plan to increase spending next year can improve infrastructure and drive industrial development in the long run.
The latest autumn economic forecast report released by the German government believes that the German economy is expected to achieve a moderate growth of 0.2% by 2025, and the momentum of economic recovery will begin to strengthen from the end of this year to the beginning of next year. The economic growth rate is expected to reach 1.3% by 2026. German Federal Minister of Economy and Energy, Katerina Reicher, stated that in the coming years, the German economy will largely rely on high government spending, including infrastructure special funds and defense investment, as fiscal stimulus measures to emerge from the trough. However, the prerequisite is to promote the implementation of structural reforms. Heiner Heckenhof, General Manager of the German Banking Association, also believes that it is necessary to decisively and comprehensively promote reforms to effectively improve Germany's economic growth and investment conditions.