After two years of contraction, Germany is experiencing a fragile recovery in 2025
Germany's economy returned to growth in 2025 for the first time in three years, with a modest increase of 0.2% as household spending and government expenditures began to support the slow recovery. The increase was in line with analysts' expectations.
The largest economies in Europe were stuck in a recession after their industrial sector lost competitiveness in major export markets, while consumers preferred saving over spending. The ambitious fiscal stimulus plan launched by Chancellor Friedrich Merz is gradually starting to bear fruit.
Household spending increased by 1.4% and government expenditures by 1.5% in 2025; however, total investment decreased by 0.5%, with investment in machinery and equipment falling by 2.3%. A special plan worth 500 billion euros for infrastructure and defense aims to reverse this trend and boost long-term growth.
Exports fell by 0.3% for the third consecutive year, due to rising U.S. tariffs, a strong euro, and increasing competition from China. Fewer cars, machinery, and chemical products were exported, while service exports rose modestly by 1.1%. On the other hand, imports rose by 3.6%, reducing the German trade surplus to 110 billion euros, the lowest level in over 20 years.
Despite these challenges, experts feel a cautious optimism. Financial stimulus, particularly government spending on infrastructure and defense, is expected to support a more sustainable recovery. Analysts expect GDP to rise by about 1% in 2026, although structural issues in the economy will require long-term solutions.