German economy breaks 2-year slide with modest 2025 growth

Germany’s economy returned to modest growth in 2025, breaking a two-year period of contraction. The country’s GDP expanded by 0.2% for both the full year and the final quarter, largely driven by stronger household consumption and a surge in government spending under Chancellor Merz’s ambitious fiscal stimulus program. The recovery, though slow, signals the end of a period of stagnation during which Germany’s vast industrial sector struggled with rising costs, declining competitiveness in key export markets, and cautious consumer spending. Despite the uptick in growth, investment remained weak, with total investment down 0.5% and machinery and equipment spending falling 2.3%. Exports also declined slightly by 0.3%, hampered by US tariffs, a stronger euro, and increasing competition from China. Economists highlight that while fiscal stimulus has provided a temporary boost, broader structural issues—such as an over-reliance on traditional industries and slow adaptation to new technologies—continue to limit robust, sustainable growth. Looking ahead, analysts expect momentum to improve as the investment cycle gradually turns and continued government spending on infrastructure and defense supports economic activity. ING economists describe the recovery as a small but meaningful improvement, noting that while the immediate effects of stimulus are visible, deeper, long-term challenges remain, meaning Germany’s path to sustained growth will be gradual. As one analyst put it, “The corn’s about to pop, but a healthy diet includes more than only popcorn,” emphasizing that temporary gains are only part of the broader economic picture.