Germany leaves behind two years of recession

BarcelonaThe German economy, the largest in Europe, left behind the recession in 2025 and recovered growth after two consecutive years of declining economic activity.

Germany's gross domestic product (GDP, the indicator that measures the size of an economy) increased by an average of 0.2% last year, according to data published this Thursday by Destatis, the country's statistical agency. In 2023 and 2024, it had closed the year with declines of 0.9% and 0.5%, respectively.

"After two years of recession, the German economy has slightly recovered its path to growth," said Destatis President Ruth Brand.

The main driver of the economic recovery is household consumption, which has propelled growth. German households increased their consumption by 1.4% in a business environment that remains depressed, as in previous years. In this respect, investment was weak once again, closing in 2025 0.5% below 2024 levels, both in terms of investment in construction and in productive assets such as machinery. In fact, the lack of investment is one of the problems that explains the country's weak growth for years. On the one hand, public investment has been depressed for many years due to the constitutional obligation -relaxed a few months ago– maintaining the public deficit at almost 0%, which prevented public administrations from borrowing to invest in infrastructure or services that would increase the productivity of companies and workers. Likewise, the high levels of private debt following the crisis and the problems in the country's banking sector have also limited access to credit and, therefore, the investment capacity of companies.

However, the German government ended the year with a deficit (the difference between what it spends and what it takes in) of 2.4% of GDP, three-tenths of a percentage point lower than the previous year's rate and six-tenths of a percentage point below the 3% threshold set by European regulations. Chancellor Friedrich Merz announced a plan, approved by parliament last March, to allocate 500 billion euros to investments public sector projects in infrastructure, defense, and other strategic industries.

Decline in exports

Another weak point for the German economy, the external sector, also failed to recover in 2025: For the third year running, German exports continued to decline, this time by 0.3%. Strength in international markets—for many years Germany was the world's leading exporter by value, even surpassing China—had been one of the pillars of the German economy, especially through its industrial sector. Since the pandemic and the war in Ukraine, however, German industry has suffered serious problems due to increased costs, particularly energy costs, due to the lack of access to natural gas and oil from Russia, which were an essential source of cheap energy. In addition, sectors such as renewables and automotive currently face much tougher competition from China and other Asian countries than in the past, as well as the trade war initiated by the United States, traditionally one of its main trading partners.

In fact, manufacturing activity fell by 1.3% in 2025 due to competition in international markets. Likewise, construction also had a bad year, with a 3.6% decline in activity. Only the services sector grew, with a 1.2% increase in trade, restaurants, transportation, and hospitality, although business services and entertainment also ended the year with declines.