German economy remains stagnant despite new government

Despite promises of recovery from the new government, Germany’s economy continues to stagnate, with no signs of renewed momentum. According to the latest report from the German Chamber of Industry and Commerce (DIHK), the country still lacks the drive needed for a genuine economic rebound.

The DIHK’s Autumn 2025 business survey, which reflects the expectations of around 23,000 companies from across all regions and sectors, shows that confidence among firms has once again weakened.

DIHK Chief Executive Helena Melnikov said that conditions failed to improve over the summer — on the contrary, “sentiment deteriorated slightly once again.”

Chancellor Friedrich Merz had earlier promised that the economy would begin to recover by the summer. However, Melnikov noted that no tangible progress has been made, with the chamber now expecting zero GDP growth this year and only a 0.7% increase in 2026.

She pointed to structural challenges, rising social security contributions and the higher minimum wage as major pressures on businesses, particularly in labour-intensive sectors such as hospitality and accommodation.

Corporate investment, she added, remains 10% below pre-pandemic levels, even five years after the onset of COVID-19. The DIHK is urging the government to reduce bureaucracy, curb costs such as social security payments, and extend the promised cut in electricity tax to all businesses, not just industrial ones.

The chamber also forecasts a 1% drop in exports this year due to U.S. tariffs, following a 2.1% decline in 2024, though a modest 0.5% rise is expected next year.

The DIHK confidence index, which measures both the current economic situation and business expectations, slipped by one point to 93.8. Only 15% of surveyed companies expect an improvement over the next 12 months, while 27% foresee a further deterioration.

Meanwhile, 22% of firms plan to increase investment, 31% intend to cut back, and just 11% plan to expand their workforce, compared to 24% considering layoffs. More than half (56%) of respondents identified labour costs as one of their biggest risks.

Germany’s economy contracted by 0.2% in the second quarter after a modest 0.3% expansion in the first, narrowly avoiding a recession but showing no growth in the third quarter. Economists cite high energy prices, weak global demand and U.S. tariffs as the main obstacles to growth.

The country also faces ongoing chip shortages affecting car production, while China’s growing self-reliance in manufacturing has reduced demand for German exports.

The German government has pledged to stimulate growth through higher infrastructure and defence spending, but experts warn that the effects of these measures will take longer to materialise.

In October, Berlin raised its 2025 growth forecast from 0% to 0.2%, projecting 1.3% growth in 2026 and 1.4% in 2027, largely driven by public spending.

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