The DIW had previously expected 0.1% growth for 2025 but it upgraded the forecast due to a better-than-expected first quarter, when the German economy grew by 0.4%.

“The surprisingly dynamic start to the year is likely to spare us from another year of stagnation,” said the DIW’s chief economist Geraldine Dany-Knedlik.

The economy is expected to gain momentum at the end of the year thanks to a government investment package, the DIW said in its report.

Germany’s parliament approved plans for a massive spending surge in March, including a €500 billion (US$577 billion) infrastructure fund and largely removing defence investment from rules that cap borrowing.

The investment package and improved financing conditions are likely to give the economy a noticeable boost, while US trade policy burdens German foreign trade and the global economy, the institute said.

The German economy is expected to grow by 1.7% next year, according to the DIW Berlin, up from a previous forecast of 1.1%.