Germany’s Economy Faces Deepening Crisis

Germany’s economy is in the midst of a significant downturn, with the country’s gross domestic product (GDP) projected to shrink by 0.1% in 2025, according to the BDI industry association. This marks the third consecutive year of economic contraction—a troubling first since Germany’s reunification in the 1990s.

While the eurozone is expected to grow by 1.1% and the global economy by 3.2%, Germany lags far behind, highlighting its struggle to maintain competitiveness in the global market. “The situation is very serious: Growth in industry, in particular, has experienced a structural break,” BDI President Peter Leibinger remarked during a recent address in Berlin.

Germany’s economic challenges extend beyond recent shocks like the COVID-19 pandemic and Russia’s invasion of Ukraine. Leibinger pointed to long-standing structural weaknesses, which have been festering since 2018, as the primary cause of the downturn.

Rising global competition, persistently high energy costs, elevated interest rates, and a lack of clear economic direction have compounded the problem.

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The crisis has reverberated through Germany’s iconic industries, with companies like Volkswagen implementing steep cost-cutting measures to stay afloat. Meanwhile, political discord over strategies to revive Europe’s largest economy contributed to the collapse of the governing coalition, underscoring the urgency for decisive action.

Leibinger called for immediate investments in modern infrastructure and measures to enhance the economy’s resilience and transformation. He emphasized reducing bureaucracy, lowering energy costs, and strengthening Germany’s innovation and research capabilities. “Public investment is urgently needed to address these structural issues,” he said.

Leibinger also urged Germany to adopt a more assertive leadership role within the European Union, promoting strategic independence for the region. “Europe must position itself more strategically,” he stated, highlighting the need for Germany to lead by example.

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The economic outlook could worsen further, particularly if tensions with the United States escalate. With former U.S. President Donald Trump potentially returning to the White House, threats of new tariffs loom large.

According to Leibinger, such tariffs could cause the export-reliant German economy to shrink by 0.5% in 2025, compared to the current forecast of a 0.1% decline.

To mitigate these risks, Leibinger emphasized the importance of fostering a transactional relationship with the U.S. “We need strategically important competencies that make us indispensable to our partners,” he said.

Germany’s economic woes underscore the need for bold leadership and strategic reforms. Investing in innovation, reducing energy costs, and fostering collaboration within Europe and beyond will be essential to reversing the current trajectory. Without decisive action, Germany risks falling further behind, jeopardizing its position as Europe’s economic powerhouse.