Bringing up the rear in Europe? Germany’s economic outlook for 2025

‘Bottom of all industrialised nations’ and ’Will Germany remain the sick man of Europe?’ – these headlines are merciless. In autumn, the government was still forecasting growth of 1.6 percent for 2026. Now the government and the leading economic research institutes have lowered their forecasts again: average growth of just 0.3 per cent is expected for 2025. Three years without growth would be unprecedented in post-war history.
Companies and consumers share the sceptical outlook: According to the ifo Institute, only 12.6% of companies expect business to improve, while 31.3% expect it to deteriorate. There are many reasons for this: high energy prices, sluggish technological progress, an increasing shortage of skilled labour and ever-increasing competitive pressure are weighing on German industry. Energy-intensive sectors such as chemicals, automotive and metal production are under particular pressure. Added to this are structural problems such as low productivity (30% lower than in the USA) and high bureaucratic hurdles. Examples such as permits for heavy goods transport, which take twelve times as long in Germany as in the Netherlands, illustrate the challenges.
The German labour market, previously an anchor of stability, is showing its first signs of weakness:Four out of ten companies are planning to cut jobs in 2025.The IAB’s unemployment indicator fell to its lowest level since the pandemic – signalling a deterioration.There is also a reluctance to invest: 40% of companies want to invest less.Uncertainties caused by geopolitical tensions, protectionism and political instability are putting the brakes on urgently needed investments.
However, there are also glimmers of hope: the end of drastic interest rate hikes is reviving the property industry, and sectors such as pharmaceuticals, energy and water management as well as agriculture are expecting slightly rising production figures.Inflation is approaching the ECB’s target of 2% in 2025, but noticeable economic stimulus from lower interest rates is not expected until 2026.