The German economy is grappling with a deep crisis, with the BDI (Bundesverband der Deutschen Industrie which translates to Federation of German Industries) projecting a 0.1% contraction in GDP for 2025.

This marks the first time since reunification that Germany could experience three consecutive years of economic decline.

In contrast, the eurozone is expected to grow by 1.1%, while the global economy is forecasted to expand by 3.2%, placing Germany among the economic laggards in the eurozone.

“The situation is very serious: growth in industry, in particular, has suffered a structural break,” said Peter Leibinger, BDI President, during a press conference in Berlin. He emphasized that Germany’s economic woes stem not only from external shocks like the pandemic and the Ukraine conflict but also from homegrown structural weaknesses that have persisted since 2018.

Key factors contributing to the crisis include: High energy costs, elevated interest rates, increasing global competition.

The struggling economy has had a significant impact on Germany’s iconic auto industry, with companies like Volkswagen implementing steep cost-cutting measures to stay competitive.

Leibinger criticised successive governments for failing to address Germany’s structural issues, calling for urgent measures to boost public investment in modern infrastructure and economic resilience, reduce bureaucracy and high energy costs, and develop a clear strategy to strengthen innovation and research capabilities.

He also urged Germany to adopt a more confident leadership role in Europe and push for the EU to achieve greater strategic independence.

Looking ahead, external factors could further strain the economy. Leibinger highlighted the potential return of Donald Trump to the US presidency and his tariff threats. If realised, these could shrink Germany’s export-oriented economy by 0.5% in 2025, worsening the current forecasted decline of 0.1%.

To mitigate such risks, Leibinger advocated for Germany to develop a transactional relationship with strategic international partners, ensuring that “strategically important competencies” are exclusive to Germany.

Germany’s economic crisis is not just a short-term downturn but a culmination of years of neglecting fundamental structural reforms. The BDI’s stark assessment underscores the need for decisive policy action to address systemic weaknesses and restore economic growth.