Germany's economy eked out meagre growth in 2025, expanding by 0.2%, thereby avoiding a third consecutive year of recession, official data showed today. The world's third-largest economy had contracted in both 2023 and 2024, battered by an energy shock from the Ukraine war, a manufacturing slump, and weakening demand in China.
The Federal Statistical Office (Destatis) reported that higher government and household spending drove the modest expansion, despite headwinds from US tariffs, a stronger euro, and increased Chinese competition. Exports fell for the third straight year, declining 0.3% in 2025, as Destatis chief Ruth Brand noted that Germany's export business faced strong headwinds.
Chancellor Friedrich Merz, who took office in May 2025 vowing to revive the economy, acknowledged in a speech that the situation at the start of 2026 is 'very critical in many areas'. He admitted that productivity has been low for a decade and that the economy is not competitive enough. Merz is relying on a public spending spree on defence and infrastructure to stimulate growth, with the government forecasting 1.3% expansion in 2026.
However, doubts persist about the coalition's ability to address structural problems. The Bundesbank and several institutes have lowered growth forecasts, warning that the government risks wasting borrowed money and neglecting reforms. The Ifo institute's Timo Wollmershaeuser stressed that further measures are needed to help the economy out of its structural crisis.
Manufacturing output fell for the third year in a row, dropping 1.3% from 2024, though the decline was less severe than in previous years. The auto and mechanical engineering sectors were particularly hard hit by global competition. The Federation of German Industries warned that the export-driven economy is suffering its deepest crisis since World War II, with industrial job losses mounting across traditional sectors.
