Germany Faces Economic Stagnation Amid Government Reform Efforts and Deutsche Bahn Leadership Changes

Germany's economic outlook remains bleak as leading institutes predict prolonged stagnation despite government promises of reform. Chancellor and CDU leader Friedrich Merz expressed optimism at a coalition committee press conference, emphasizing that 2025 would be a year of significant reform efforts aimed at reducing bureaucracy. He claimed the government had never before enacted so many reforms. However, soon after, the Munich-based Ifo Institute downgraded growth forecasts for 2025 and 2026, warning that without substantial structural reforms and boosting workforce potential, Germany could face up to 15 years of near-zero economic growth. Ifo's chief economist Timo Wollmershäuser highlighted risks including stagnant per capita income and unsustainable social systems due to an aging population. Current government measures, such as special depreciation for businesses and a €500 billion infrastructure debt fund, were deemed insufficient for ensuring long-term growth.

In parallel, internal coalition conflicts, especially over pension and electricity price policies, are undermining economic confidence. Public support for necessary reforms appears uncertain, particularly amongst an expanding retiree demographic.

Against this backdrop of economic challenge, Deutsche Bahn announced leadership changes with Evelyn Palla appointed as the new CEO. Palla, trusted by employees and known for her pragmatic approach and direct engagement, signals a "Neustart" (restart) for the national rail operator. Unlike her predecessor Richard Lutz, Palla's hands-on experience as a licensed train driver and her commitment to delivering on promises offer hope for tangible progress within the state-owned enterprise.

While the government pushes reform rhetoric, economic experts caution that without decisive and broad reforms, Germany’s growth prospects remain subdued, setting the stage for a difficult economic decade ahead.