Three consecutive years of crisis, poor sentiment among many companies, more corporate insolvencies: the German economy is in rough waters. The sobering balance sheet for the past three years: just two quarters of growth. Even the policies of the new black-red coalition have not yet brought about a change in sentiment.
However, things are expected to pick up in 2026, albeit only cautiously. Depending on the forecast, growth of between +0.6% and +1.5% is expected. Growth in 2026 is likely to be driven mainly by special factors: billions in government spending on infrastructure such as roads and railways, as well as on defense. In addition, more public holidays will fall on weekends, meaning that there will be more working days in 2026 than in the previous year.
However, according to associations and economists, a real upturn in Germany is not to be expected without far-reaching reforms. High energy costs, rising social security contributions, lengthy planning and approval procedures, and excessive bureaucracy continue to weigh on the German economy.
The mood among companies in Germany has also deteriorated again. The ifo Business Climate Index fell to 87.6 points in December 2025, down from 88.0 points in November 2025. This was due to poorer expectations for the coming months.
The public expenditure ratio, which indicates the state’s influence on an economy, is calculated as total government expenditure as a percentage of GDP. According to the EU Commission, this amounted to 50.2% in Germany in 2025, slightly above the EU average of 49.6% and the public spending ratio of other major economies such as the United Kingdom (46.9%), the USA (39.6%) and Japan (41.3%).
According to the OECD, the share of taxes and social security contributions in total labor costs for average earners in Germany was 47.9% in 2024 for singles without children. This puts Germany in second-worst place among the 38 OECD member states after Belgium and well above the OECD average of 34.9%, which detracts from Germany’s attractiveness as an investment location. The rate is also significantly lower in countries outside the EU, such as the United Kingdom (29.4%) and the United States (30.1%).
The current forecasts by German economic research institutes and government organizations for GDP growth in Germany range between +0.6% and +1.5% for the calendar year 2026 and between +1.0% and +1.6% for 2027: