Germany is stuck in a deep economic crisis amid a structural break that the country’s leading industry lobby predicts will lead to the most protracted downturn since reunification nearly 35 years ago.
The Federation of German Industries (BDI) forecasts the German economy to contract by 0.1% in 2025. That would follow a 0.2% decline in 2024 and a 0.3% contraction in 2023. According to the BDI, Germany’s expected contraction this year is in contrast to projected growth of 1.1% for the European Union.
“Industrial growth, in particular, has suffered a structural break. Order books remain empty, machines are standing still, companies are no longer investing—or at least not in Germany,” said BDI president Peter Leibinger. “I cannot remember such a bad mood in industrial companies.”
Germany’s economy suffered a double shock from the COVID-19 pandemic and Russia’s invasion of Ukraine. The latter continues to put deep pressure on the economy after sanctions against Russian oil and gas cut Germany off from a crucial energy source.
However, BDI’s Leibinger says Germany’s industrial issues began as far back as the summer of 2018, around the time industrial production peaked.
"For years, governments have postponed important reforms, held back investments, and been content with the status quo," Leibinger said of Germany’s long-term decline.
Speaking alongside Leibinger in Berlin, BDI general manager Tanja Gönner said Germany was once again one of the economic laggards of the European Union.
Gönner said since the Ukraine invasion, production in energy-intensive industries in Germany had fallen by a fifth. Broader industrial production, meanwhile, was 16% lower than its peak in the second quarter of 2018.
“German industry is once again facing a difficult year. The outlook is bleak—which makes it all the more important that a future federal government correctly interprets the signs of the times and takes bold measures to counter the negative trend.”
Major German Fortune 500 Europe companies announced more than 60,000 layoffs last year as the country’s industrial giants battled with an increasingly hostile macroeconomic environment. Germany’s export-intensive economy proved itself to be poorly equipped for falling global trade.
In addition to energy-related increases in input costs, a consistent theme among Germany’s biggest strugglers is falling demand in China, where consumers are increasingly opting for domestic-made cars while Chinese manufacturers continue to beat German competitors on costs.
Germany now also has to look west for added threats.
Donald Trump’s return to the White House brings fresh fears of import tariffs on European goods to the U.S.
That would have an outsized impact on Germany, which has built ties with the States in place of China in recent years.
The BDI warns that Germany’s economy could contract by 0.5% rather than the current predictions of 0.1% if Trump implements import tariffs on German goods.
The lobby group is calling for a three-pronged approach to kickstart Germany’s economy and renew competitiveness. That includes addressing prohibitive bureaucratic costs, pivoting to green and digital technologies, and upping infrastructure investment to avoid deindustrialization.
"Public investment in modern infrastructure, in the transformation and the resilience of our economy, is urgently needed," said Leibinger.
The BDI's grim prediction comes as Germany's political parties hit the campaign trail ahead of national elections in February after Chancellor Olaf Scholz dissolved the government in December.
The far-right AfD party is expected to make significant gains in an election that will likely result in the formation of another coalition government.
