A noticeable economic upswing in Germany is still a long time coming. The federal government only expects low economic growth of 1.0 percent this year, as Economics Minister Katherina Reiche (CDU) said when presenting the annual economic report. Last fall, Reiche had expected gross domestic product (GDP) to increase by 1.3 percent.
Long stagnation
In 2025, Germany barely missed its third year of recession, with mini-growth of 0.2 percent. Germany is lagging behind other large industrial nations. The “economic experts” also expect growth of 0.9 percent for 2026. Industrial sectors in particular are in crisis.
The general manager of the Federation of German Industries, Tanja Gönner, said: “The expected economic recovery is small and remains fragile.” DIHK General Manager Helena Melnikov added: “Germany is growing, but far too slowly.” A mini-plus in the economy in 2026 is a sobering signal and far from what the location could achieve.
More speed in implementing investments
According to the government, one reason for the clouded expectations is that the recovery in the second half of 2025 was weaker than expected. The start of the new year was therefore more difficult. In addition, the state’s billions spent on modernizing infrastructure, climate protection and strengthening the Bundeswehr are having a slower effect than hoped. Federal Finance Minister Lars Klingbeil (SPD) said that more speed is needed to implement state investments.
The debt-financed so-called special funds are a key driver of economic growth. According to the government, state investments are expected to contribute around two-thirds of a percentage point to GDP growth in 2026. The construction industry and the defense industry, for example, are expected to benefit from this.
To ensure that the funds are used quickly, planning and approval procedures should be accelerated. However, changes to the law have not yet been decided. The Greens criticized that funds from the special fund would not only be used for additional investments, but instead would be used to plug holes in the core budget.
Weak export development
German exports, which were so strong in previous years, are weakening. There are various reasons for this. On the one hand, higher US tariffs are putting a strain on many companies. In 2025, German exports to the USA fell by almost ten percent due to higher US tariffs. There is also stronger international competition, especially from China. “The global economic prospects remain difficult, despite the overall robust development of global growth and trade,” said the Federal Government. The EU and the federal government’s strategy includes new trade agreements with the South American confederation of Mercosur and India, so that the economy becomes more broadly positioned.
Inflation and the labor market
According to the forecast, consumer prices are expected to increase by around 2.1 percent, slightly less than in previous years. On average for 2025, the inflation rate was 2.2 percent. The federal government expects a slight reduction in unemployment on the labor market this year. In 2025, the weak industrial economy left “clear traces,” it said. Many companies cut jobs.
Structural reforms
The federal government’s primary goal is to get the German economy back on a growth path, said a government spokesman. To achieve this, the reform course must continue. Competitiveness should be increased. Klingbeil said it was about higher productivity, innovative strength, education and research and the faster recruitment of skilled workers.
Business associations repeatedly cite homemade reasons for the weakness of the German economy: high energy prices compared to international standards, high taxes and duties, and too much bureaucracy. The federal government has introduced measures – but business associations are calling for greater relief.
Additional tax relief has also come into focus. The Union is in favor of bringing forward the gradual reduction in corporate tax planned from 2028 – if the budget situation of the federal and state governments allows it. In the coalition agreement, the Union and the SPD also announced that they would reduce income tax for small and medium-sized incomes in the middle of the legislative period. But that too is likely to cost many billions.
Working hours
A move by the Union’s economic wing to restrict the legal right to part-time work has sparked a lot of criticism. Reiche sees Germany at an international disadvantage when it comes to labor productivity. In the coalition agreement, the Union, CSU and SPD also announced more flexible working hours. The Working Hours Act is intended to create the possibility of a weekly maximum working time limit instead of the applicable daily maximum working time limit. However, this has not yet been implemented. Trade unions reject the plans.
Demographic development
A core problem is demographic development, i.e. the increasing aging of society. The “baby boomers” are increasingly retiring, but there are not enough workers coming. This reduces the already weak so-called potential growth and could exacerbate skilled labor shortages. In addition to skilled worker immigration, the federal government is focusing on increased employment among women and, with the “active pension”, more work in retirement age.
