The Handelsblatt Research Institute (HRI) predicts that Germany will endure its longest economic downturn since World War II, with 2025 marking a third consecutive year of recession. This grim forecast anticipates the economy shrinking by 0.1% in 2025, following contractions of 0.2% in 2024 and 0.3% in 2023.
“This is the biggest crisis in post-war history,” stated Handelsblatt’s chief economist Bert Rürup. He pointed to the pandemic, energy crisis, and inflation as key culprits, adding that Germany’s aging population exacerbates its challenges. Growth potential has dwindled to a modest 0.5%, offering little hope for a swift recovery.
While consumer spending remains a lifeline, it’s a mixed bag. Private consumption in late 2025 is projected to barely surpass pre-pandemic levels, whereas government spending will have surged by 12% during the same period. Investment, a critical driver of innovation, continues to decline, with 2026 levels expected to match those of 2016.
Inflation poses another headache, with rates predicted to stay above 2% through 2026. The European Central Bank faces a tough balancing act: stimulate the economy by cutting interest rates or curb inflation by keeping rates high.
Energy woes deepen the crisis. Germany’s reliance on renewables, coupled with the closure of nuclear plants, has left the nation vulnerable. Dirk Howe, managing director of Siempelkamp foundry, lamented that volatile energy prices forced his company to cut production by 30% and send workers home. “Our electricity system forces us to work inefficiently. That’s pure madness,” he said, calling for immediate reforms.
The auto industry, a pillar of Germany’s economy, faces severe risks. Hildegard Müller, president of the German Association of the Automotive Industry, warned that one in four car industry jobs could vanish within a decade.
The broader business climate is bleak. A 2024 survey by the German Chamber of Industry and Commerce revealed that a third of companies plan to scale back innovation. Only 26% of entrepreneurs rated their situation as good, while 25% felt the opposite.
Even if the government wanted to deploy stimulus measures to win voter support ahead of Bundestag elections, Rürup noted, it simply lacks the funds. As real wages remain stuck at 2017 levels, average Germans are bearing the brunt of this historic slump.
