The German economy continues to face major challenges in 2025. After two consecutive years of GDP decline (by 0.3% in 2023 and 0.2% in 2024), the current year is characterised by stagnation, with GDP growth projected at 0.0%. This makes Germany the only G7 country that has not shown economic growth in the last three years.
Key economic indicators
- GDP: the German economy grew by 0.2% in the first quarter of 2025, avoiding a technical recession.
- Inflation: in April 2025, the inflation rate was 2.1%, indicating price stabilisation.
- Unemployment: the unemployment rate reached 6.3% in April, the highest rate since December 2015, excluding the pandemic period.
- Consumer sentiment: the GfK Consumer Sentiment Index improved to -20.6 points in May, indicating cautious optimism among the population.
Key concerns
- Trade tensions: new tariffs imposed by US President Donald Trump’s administration are putting pressure on Germany’s export-oriented industry, especially in the automotive and metals sectors.
- Structural challenges: demographic changes, shortages of skilled labour and high energy costs continue to constrain economic growth.
- Political instability: delays in forming a new government after the February 2025 elections create uncertainty over economic policy.
Measures to stimulate the economy
The new government under Chancellor Friedrich Merz, due to take office on 6 May, is expected to unveil a package of measures to stimulate the economy. Among them:
- Creation of a €500 billion investment fund for infrastructure and defence.
- Reform of the tax system to reduce the tax burden on business.
- Simplification of bureaucratic procedures to stimulate entrepreneurial activity.
Forecasts for the future
Economists forecast a moderate recovery of the German economy in 2026 with GDP growth of around 1.0%. However, the successful realisation of these forecasts will depend on the new government’s ability to deal effectively with internal and external challenges.