Germany Ends 2-Year Slump With Economic Growth Return

Germany just broke free from a two-year economic slump, signaling hope for millions across Europe's industrial powerhouse.

The country's economy grew 0.2% in 2025 after shrinking for two consecutive years. It's the first time in three years that Germany has seen expansion, driven by people spending more and the government investing heavily in the nation's future.

"After two years of recession, the German economy edged back into growth," said Ruth Brand, President of the Federal Statistical Office. The recovery came as German households increased spending by 1.4% and the government boosted expenditure by 1.5%.

Chancellor Friedrich Merz launched a massive spending plan earlier this year to jumpstart the economy. Parliament approved a 500 billion euro fund for infrastructure improvements and removed caps on defense spending, ending decades of conservative fiscal policy.

The shift represents a bold bet on Germany's future. After getting stuck in stagnation when high costs made exports less competitive and worried consumers chose saving over spending, the country needed a new approach.

Economists see this as just the beginning of better times ahead. "The period of national gloom has come to an end and there are good reasons to finally be more positive about the German economy," said Carsten Brzeski, global head of macro at ING.

The recovery still faces challenges. Investment in machinery and equipment fell 2.3%, and exports dropped slightly due to international trade headwinds. However, economists predict the economy will gain momentum as infrastructure and defense spending flow through the system.

The Ripple Effect

Germany's economic turnaround matters far beyond its borders. As Europe's largest economy, Germany's health affects jobs, trade, and growth across the entire continent. When German factories hum and consumers spend, suppliers from Poland to Portugal benefit.

The country's GDP now sits 0.2% above pre-pandemic levels, finally recovering ground lost during COVID-19. While it took longer than some European neighbors, reaching this milestone shows persistence pays off.

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, expects momentum to build. "Our forecasts assume that the German economy will now gain momentum, primarily as the investment cycle turns, supported by sustained fiscal stimulus focused on infrastructure and defense spending," he said.

The government's revenue also grew faster than spending, rising 5.8% compared to the 5.1% increase in expenditure. This meant the budget deficit actually shrank by almost 8 billion euros despite the increased investment.

After years of headlines about Europe's "sick man" economy, Germany is writing a comeback story built on smart investment and renewed consumer confidence.