Economic experts dampen growth expectations

In their spring forecast, the Council of Economic Experts revised its expected growth rate downwards. They cite the consequences of the war in the Middle East as the reason. The pressure for reform continues to increase, commented the skilled trades sector.

The Council of Economic Experts The German Council of Economic Experts has published its spring report for the current year. In it, the council has revised its forecast for GDP growth downwards to 0,5 percent for 2026. Next year, GDP is expected to increase by 0,8 percent. At the end of last year, they had assessed the situation more optimistically, predicting growth of 0,9 percent for this year. The war in the Middle East is weighing on economic development in Germany.

The increased energy prices resulting from the Iran war fueled inflation, thereby reducing the purchasing power of private households. Consumer price inflation in Germany is expected to rise to 3,0 percent this year and only decline slightly to 2,8 percent in 2027. High energy costs are also a burden for businesses, hampering production and investment. "The already weak economic development is being further hampered by the current energy supply shock. At the same time, demographic aging is exacerbating the pressure on social security systems," the experts stated. 

Social security spending slows down

According to them, social security expenditures are rising faster than contribution-based revenues, which is why the total social security contribution rate will increase to almost 50 percent by 2040. This development is increasingly becoming a burden on the overall economy. "The foreseeable increase in social security expenditures should be slowed down. At the same time, it is essential to stabilize the revenue base and the level of benefits provided by social security," says Monika Schnitzer, Chair of the Council of Economic Experts.

Expenditure in the statutory health insurance system (GKV) should also be limited, as it has grown significantly faster than revenue. "Therefore, available funds should be used efficiently, and the increase in expenditure, particularly in hospital care and pharmaceuticals, should be curbed. At the same time, preventative healthcare should be strengthened." Additional reforms, such as abolishing the free co-insurance of non-child-rearing spouses, could contribute to stabilizing the financing of the GKV on the revenue side. 

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Reform pressure is increasing

The Council of Experts recommends maintaining long-term care insurance as a partial insurance scheme. Care benefits should be limited to the professionally recommended level, and less targeted measures should be eliminated. A new reform of the statutory long-term care insurance system must resolve the conflict between the scope of benefits, the contribution rate, and the amount of out-of-pocket expenses for those requiring care. However, a single measure cannot solve all three problems simultaneously; rather, several different measures are necessary.

"The spring report of the Council of Economic Experts rightly increases the pressure for reform on the federal government significantly once again," states Jörg Dittrich, President of the German Confederation of Skilled Crafts. The further lowered growth forecast shows that Germany can no longer afford to stand still in terms of the pace of reform. The Council's warnings regarding fundamental reforms to the financing of social security, pensions, and government spending are particularly important. "The Council rightly focuses its spring report on the spiraling social security contributions as a growth inhibitor."

Reduce ancillary wage costs

Ever-increasing non-wage labor costs are suffocating businesses and weakening investment, employment, and competitiveness. "Customers are switching to alternatives because of the high prices or are no longer using services. This benefits no one. Because services that are no longer provided generate no contributions or taxes," said Dittrich. The federal government must take this wake-up call seriously. "Anyone who allows social security contributions to rise permanently ultimately jeopardizes precisely what is being financed: economic strength, secure jobs, and social cohesion."

Policymakers must set themselves the goal of reducing non-wage labor costs, not just stabilizing them. Dittrich: "Following this, structural reforms and sustainable financing of social security systems through socially just measures must be implemented. Many companies continue to invest and take responsibility. But if the state demands more and more without becoming more efficient and willing to reform itself, the number of companies postponing investments, no longer hiring employees, or withdrawing from the community of responsibility will increase."

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