Germany is projected to have the lowest GDP growth among OECD countries in 2025, highlighting a significant economic downturn compared to global trends.
Weak exports to China and high operational costs are major contributors to Germany's stagnating economy.
The OECD recommends reforms to fiscal policies to stimulate investment and support the green transition.
Germany's economy may see a slight recovery in 2026, but growth will remain significantly lower than that of other G20 nations.
Political instability could continue to hinder economic reforms and recovery efforts in Germany.
If reforms to the debt brake are implemented, Germany could improve its investment landscape, particularly in infrastructure and green technology.
Germany's Economic Outlook Remains Bleak Amid Global Growth
The Organisation for Economic Co-operation and Development (OECD) has issued a grim forecast for Germany's economy, predicting a mere 0.7% growth in GDP for 2025, placing it at the bottom of the OECD rankings. This is a stark contrast to the global growth rate expected to reach 3.3% in the same year. The OECD's report highlights that Germany's economy is struggling due to several factors, including weak exports to China and high operational costs for energy-intensive industries.
The report indicates that Germany's economy has stagnated, with no growth anticipated for 2024, making it one of the poorest performers among G20 nations. The OECD's expert, Isabell Koske, noted that the country has been unable to recover from the energy crisis triggered by the Russian invasion of Ukraine, which has significantly impacted its industrial sector.
Challenges Facing Germany's Economic Recovery
The OECD attributes Germany's economic woes to a combination of external and internal factors. The decline in demand from China, a key trading partner, has severely affected German exports, particularly in the automotive and pharmaceutical sectors. Additionally, the restrictive fiscal policies, including adherence to the debt brake, have limited public spending and investment in crucial areas such as infrastructure and green technology.
Despite these challenges, the OECD forecasts a slight recovery in 2026, with an expected growth of 1.2%. However, this growth remains modest compared to other G20 nations, with significant gaps still evident when compared to the USA and China. The OECD has called for reforms to the debt brake to facilitate increased investment, particularly in climate and environmental projects.
Political Uncertainty and Economic Stagnation
Political instability in Germany has further exacerbated the economic situation. The collapse of the coalition government has created uncertainty, hindering investment and delaying important economic reforms. The OECD emphasizes the need for decisive political action to address the skilled labor shortage and improve incentives for older workers and migrants.
As Germany grapples with these economic challenges, the OECD also warns of potential risks, including rising energy prices and protectionist measures from major economies. The outlook for France is similarly cautious, with expected GDP growth of 0.9% in 2025, reflecting broader concerns about political stability and economic recovery in the region.
