Germany’s robust outlook is characterised by its large size, wealthy economy, solid institutions, strong external position, and track record of fiscal prudence. Additionally, Germany benefits from being a member of the European Monetary Union.  Despite these strengths, Germany has been facing cyclical challenges like a slowing economy and structural weaknesses like an aging population, low public investment, rising competition for its core industries, and energy transition necessity to meet the carbon emissions targets.

Germany has been significantly lagging behind its peers in terms of economic growth in the recent past. Fiscal austerity could further weigh on growth conditions. In this context, fiscal austerity and political developments should be closely monitored.