Germany's long-struggling economy has finally returned to a path of modest expansion, posting growth in 2025 after two consecutive years of decline, according to official data released on Thursday, 15 January 2026.
Modest Recovery Amid Export Challenges
The German Federal Statistical Office reported that the country's gross domestic product (GDP) expanded by 0.2% for the full year 2025. This positive figure follows a contraction of 0.5% in 2024 and a more significant shrinkage of 0.9% in 2023. The recovery was primarily fueled by stronger consumer spending and increased government expenditure.
However, the nation's crucial export sector continued to face substantial difficulties. Ruth Brand, head of the statistical office, stated that "Germany’s export business faced strong headwinds" due to a combination of factors. These included higher US tariffs implemented under President Donald Trump, the appreciation of the euro, and intensified competition from Chinese manufacturers.
Government Spending Offers a Lifeline
Expectations are now rising that Germany could experience more robust growth in the current year. This optimism stems from plans by Chancellor Friedrich Merz's government to significantly increase investment in public infrastructure, aiming to address years of chronic underinvestment in bridges and rail lines.
Furthermore, defence spending is being ramped up in response to a perceived elevated threat level from Russia following its invasion of Ukraine. This fiscal stimulus is seen as a potential catalyst to pull the Europe's largest economy out of its extended period of stagnation, which began after the COVID-19 pandemic.
Structural Weaknesses Exposed
The recent period of slow growth has highlighted several deep-seated structural issues within the German economic model. The economy, which is heavily reliant on exports, was first hit by soaring energy costs after the war in Ukraine. It then faced increasing competition from China in its traditional strongholds like automotive manufacturing and industrial machinery.
The final blow came from the Trump administration's imposition of higher tariffs on goods imported from the European Union. Alongside these external pressures, long-term domestic problems such as excessive bureaucracy, a shortage of skilled labour, and the price disadvantage created by a stronger euro have all been laid bare.
While a panel of leading economists has forecast growth of 0.9% for the current year, they caution that this prediction is contingent on the government's planned spending increases being deployed swiftly. Preliminary data indicates the economy grew by 0.2% in the final quarter of 2025, suggesting the fragile recovery was ongoing as the year ended.
