BERLIN: The German economy is expected to grow by 0.3% in 2025 following two consecutive years of contraction, according to economic institute DIW Berlin, marking the fifth institute to revise its forecasts upwards for 2025 and 2026.

Previously, DIW had projected a growth rate of just 0.1% for the year. However, the forecast was upgraded after Germany’s economy recorded better-than-expected performance in the first quarter of 2025, registering a 0.4% growth.

“The surprisingly dynamic start to the year is likely to spare us from another year of stagnation,” said Geraldine Dany-Knedlik, Chief Economist at DIW.

According to the institute’s report, the economy is expected to gain further momentum towards the end of the year, driven by a government-backed investment package.

In March, the German parliament approved plans for a major increase in public spending, including a €500 billion (US$577 billion) infrastructure fund. The legislation also largely exempted defence-related investments from the country’s strict borrowing rules.

DIW noted that this investment package, coupled with improved financing conditions, is likely to provide a significant boost to the economy. However, it also warned that German foreign trade and the global economy continue to face headwinds due to U.S. trade policies.

For 2026, DIW Berlin has revised its growth forecast from 1.1% to 1.7%, reflecting increased optimism for the medium-term outlook.