China's competition, rising energy prices, structural crisis – Germany's "Five Wise Men" downgrades growth forecast and calls for reform

One of Germany's most important government think tanks, the "Five Wise Men," urged the Berlin government to implement further reforms in its spring economic report released on Wednesday. The five leading economists argue that the ruling coalition is under immense pressure and must take measures to enhance Germany’s adaptability for the future, particularly in the field of social security.

For German Chancellor Merz (CDU), this may not have been a pleasant meeting. On Wednesday, May 27, Merz and several cabinet ministers met with the so-called "Five Wise Men"—five professors from the independent advisory body known as the German Council of Economic Experts.

The council released its spring report on the same day, revising downward its forecast for Germany's economic growth. Before attending the meeting at the Chancellery, council chair Monika Schnitzer said: "Unfortunately, in our report we had to revise down our forecast for this year’s economic growth. For this year, we expect GDP growth to be only 0.5%; for next year, we project growth of 0.8%." In November last year, the council had predicted GDP growth of 0.9% for this year.

Meanwhile, inflation in Germany is expected to rise to 3% in 2026, then slightly decline to 2.8% in 2027.

The five economists believe that "the conflict in Iran, along with resulting surges in oil and gas prices, and U.S. trade policies are weighing heavily on economic development." High energy prices are weakening consumers' purchasing power, thereby dampening private consumption. Furthermore, due to global economic stagnation—partly driven by the Iran conflict and the United States’ "trade protectionist policies"—Germany’s export performance is expected to remain weak. At the same time, competitive pressures in global markets are intensifying, largely fueled by China. In Germany, one out of every four jobs depends on the industrial sector. For decades, automobiles, machinery, chemicals, and pharmaceuticals have been the pillars of German exports, and it was through these industries that Germany achieved prosperity.

Gabriel Felbermayr, one of the "Five Wise Men," pointed out that China’s exports to Europe increased again in 2025, placing a heavy burden on German industry—both in domestic and third-party markets. The European market remains the most important sales market for German exports.

Reform is imperative

Veronika Grimm, another member of the "Five Wise Men," argues that Germany’s prolonged period of economic weakness spanning seven years is not merely cyclical but deeply rooted in structural causes—including declining competitiveness and demographic trends. She stated: “We have indeed made no substantial progress in reform.”

The share of public spending in Germany’s economy is rising, and budget planning increasingly relies on borrowing. Moreover, the rebound in investment has not reached expected levels. Reforms are urgently needed in areas such as regulation, energy supply, and corporate taxation.

To curb spending growth in the social security sector, experts have proposed a series of reform measures. Within the healthcare system, hospital reforms should focus on improving operational efficiency. At the same time, drug pricing mechanisms must be more closely linked to their actual therapeutic effectiveness.

In addition, to strengthen the revenue side of the social security system, experts have put forward measures aimed at increasing overall labor input across society. These include further raising the statutory retirement age. Under current legislation, Germany’s statutory retirement age will be fully raised to 67 by 2031.

Source: DW, drawing on reports from dpa and others

Original article: toutiao.com/article/1866455254677703/

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