Ifo Chief Warns of Economic Stagnation as Criticism Mounts Against Merz Government

Germany's economic outlook has darkened with the Munich-based Ifo Institute president Clemens Fuest sounding alarms over the country's financial trajectory under Chancellor Friedrich Merz's government. In a recent interview with Süddeutsche Zeitung, Fuest sharply criticized the administration, accusing it of postponing difficult economic reforms and relying excessively on monetary solutions that could destabilize the private sector.

Fuest highlighted that "everything that is difficult is being pushed to the back burner," warning that this approach "will not end well in the long run." He pointed to policies on pensions and the potential for tax hikes as examples where this financial reliance could backfire. Further cementing these concerns, the Ifo business climate index for December 2025 fell by 0.4 points to 87.6, defying economist predictions of a slight rise and indicating a pessimistic business outlook for early 2026.

Meanwhile, socio-economic challenges are compounded by complex migration issues. According to a recent article analyzing Gabor Steingart's book, migration is more a symptom than a cause of Germany's economic decline. The critique extends to the political leadership of Olaf Scholz, whose tenure is described as a continuation of Merkel’s era with little substantive change or crisis communication.

The article explains that today's migrants, unlike past guest workers, face hardships finding employment amid industrial job declines and a failing education system, leading to marginalization and fueling toxic political narratives. Yet these migrants remain vital to the workforce in essential sectors.

Together, these perspectives reflect broader systemic issues facing Germany — from economic management critiques by experts like Fuest to political and social challenges tied to migration and leadership credibility. With the ruling coalition described as self-deluded and facing poor election prospects, the need for meaningful reforms appears urgent.

As Fuest concluded, Germany risks entering a phase of prolonged economic stagnation if decisive action is not taken to confront these difficult challenges.