- ‘The German economy has not yet recovered from the COVID-19 crisis and the energy crisis, so it’s a critical situation,’ says Achim Truger, professor of socioeconomics at the University of Duisburg-Essen
- ‘The government has made sure that they have capacities to really spend a lot of money on defense … and on infrastructure, investments … things that really need improvement in Germany,’ Martin Werding, professor of public finance at the Ruhr University Bochum
- One of the most concerning issues for German companies right now is US President Trump’s unpredictable moves and potential trade wars that could severely disrupt the global economy, says Monika Schnitzer, chair of the German Council of Economic Expert
BERLIN
Three leading German economists expect the country’s economic stagnation to continue through 2025, but forecast a potential 1% growth in 2026 if the new coalition government’s ambitious multibillion-dollar investment package succeeds.
The forecast comes as Europe’s largest economy grapples with consecutive years of mild recession and faces multiple challenges, including an automotive sector crisis, elevated energy costs, and lagging technological innovation.
“The situation is obviously not good at the moment,” Achim Truger, professor of socioeconomics at the University of Duisburg-Essen told Anadolu, adding that he anticipates another year of stagnation following two years of mild recessions.
“The German economy has not yet recovered from the COVID-19 crisis and the energy crisis, so it’s a critical situation,” he said, but noted that if the government’s new massive investment package and announced measures succeed, they could bring positive change.
“We do see a recovery next year. We expect the German economy to grow by 1%,” he said.
The EU’s largest economy contracted by 0.2% last year after shrinking by 0.3% in 2023, mainly due to the ongoing effects of the COVID-19 pandemic and the economic impact of the Russia-Ukraine war.
The country’s new coalition government, led by conservative Chancellor Friedrich Merz, has announced an ambitious €500 billion ($564 billion) fund for infrastructure investments and pledged hundreds of billions of euros toward defense.
According to Truger, the new coalition government – formed by the conservative Christian Democrats and the center-left Social Democrats – could indeed revitalize the country’s struggling economy if it successfully implements policy changes and effectively uses the massive financial package.
“There is a big chance … (with) the measures that the government has brought. A large financial package … will allow the government to spend on defense, and on public infrastructure, and this is a potential boost for the economy, which could boost long-term growth even after the year 2026,” he said.
Car industry stuck in crisis
The Merz government, which assumed office in early May, inherited a challenging economic situation from the previous administration.
The automotive sector – Germany’s flagship industry – is in a severe crisis, with plummeting sales and major manufacturers announcing factory closures and widespread layoffs, causing deep concern among politicians.
Truger explained that the German automotive industry was hit hard during the COVID-19 crisis. The sector’s recovery stalled due to ongoing supply chain disruptions after the pandemic, while the war in Ukraine both increased costs and drove up energy prices. The industry’s delayed technological innovation also proved costly.
“Obviously, they were not fast enough to go into electric cars, and they have lost competitiveness, above all to China as a very serious new competitor,” Truger said, adding that the new German government has promised to implement measures to address this challenge as well.
“There are some measures that the new government is planning, which go exactly into the right direction, and which will help the international competitiveness of also the car industry,” he said.
According to a study by the German Association of the Automotive Industry (VDA), the transition to electric vehicles and associated changes in the production chain could result in the loss of up to 140,000 jobs in Germany by 2035.
If US President Donald Trump imposes additional tariffs on the import of cars and triggers a broader trade war, this could also lead to significant job losses in Germany’s automotive sector, according to experts.
Government faces multiple challenges
Martin Werding, professor of public finance at the Ruhr University Bochum, pointed out that the new German government faces multiple significant challenges, both internationally and domestically.
He emphasized that in the coming weeks, the government must work diplomatically and strategically to manage growing global uncertainties, prevent trade wars, and secure a deal on the 2025 budget at home.
Werding expressed cautious optimism that, despite all the challenges, the government’s substantial debt-funded investment package could be transformative.
“Immediately before they started, the government has made sure that they have capacities to really spend a lot of money on defense – that’s really important in the new geopolitical situation – and on infrastructure, investments … things that really need improvement in Germany,” he told Anadolu.
“If this is done seriously, this can become something that will drive economic growth in Germany to levels we haven’t seen for quite a while,” Werding said, adding that despite current difficulties, he remains optimistic about improvement starting next year.
Energy burden weighs on business
Regarding high energy prices, which have been one of the key complaints among German manufacturers and businesses, Werding noted that this has been a persistent problem in the country.
He stressed that the new government needs to address this issue efficiently, while supporting green energy initiatives without creating additional burdens on the state budget.
“Energy costs in Germany are high and it’s important to note they have been relatively high ever since. The current level, it’s clearly a burden on the competitiveness of German firms,” Werding said.
“It needs to be reduced not through subsidies – that’s important because this would be a bridge that leads nowhere. We need to think about more reliable ways of producing green energy, and distributing it over networks,” he added.
Werding underlined that there is clear potential to reduce high energy costs and noted that the new government has also placed this issue on its agenda.
Trade war tensions
Monika Schnitzer, chair of the German Council of Economic Experts, told Anadolu that one of the most concerning issues for German companies at the moment is US President Trump’s unpredictable foreign policy moves and potential trade wars that could severely disrupt the global economy.
Schnitzer said managing relations with the Trump administration will be one of the key challenges for the new German government.
“This is a tough challenge. Hopefully, not just Merz, but the whole EU will work together and convince the US administration that it’s actually to their own disadvantage,” she said.
The renowned economist noted that Trump’s unilateral moves and trade tariffs are already harming the US economy, as shown by stock market reactions and the dollar’s declining value.
She suggested that while Germany should work to ease tensions with the US – its biggest trade partner – it must also take steps to diversify its trade relationships.
“We also have to think of alternatives. We have to find new trading partners, increase our interaction with them, say Canada, for instance, but other countries as well,” she said.
According to Schnitzer, the German economy’s future will largely depend on how well companies adapt to technological advances – particularly digitalization and artificial intelligence – to maintain their competitive edge internationally.
“I think it’s really important to not just think about industry in the traditional sense, but to think of the industry in the future. That means an industry that is very much software-based, where AI will play an important role,” she said, adding that currently Germany is lagging behind in these areas, and the new government should urgently address this problem.
“First of all, we should digitalize our own administration. We are lagging behind here. We should then also subsidize research and innovation for companies so that they develop the skills that they need for their new products,” Schnitzer said.
“At the same time, we should invest in artificial intelligence and the computing capacities that we need for that.”
