Germany Returns to Growth After Two-Year Slump

After two tough years of economic decline, Germany is growing again, and the reasons for optimism go beyond the numbers.

Europe's largest economy expanded by 0.2% in 2025, the German Federal Statistical Office announced Thursday. The growth marks a significant reversal after the economy shrank 0.5% in 2024 and 0.9% in 2023.

The turnaround came from stronger consumer and government spending, even as exports struggled under higher US tariffs and fierce competition from China. German shoppers opened their wallets, and government investment started flowing into long-neglected infrastructure projects.

Germany's export business took hits from multiple directions. Higher US tariffs, a stronger euro, and increasing competition from Chinese manufacturers in cars and industrial machinery all weighed on sales abroad. Statistical office head Ruth Brand acknowledged these "strong headwinds" facing German exporters.

The country has endured years of economic stagnation following the COVID-19 pandemic. Higher energy costs after Russia's invasion of Ukraine exposed deep structural problems, including excessive bureaucracy and shortages of skilled workers.

The Bright Side

Real hope is building for 2025 and beyond. Chancellor Friedrich Merz's government is implementing plans to dramatically increase infrastructure spending after years of underinvestment in bridges, rail lines, and public works.

Defense spending is also rising as Germany responds to heightened security concerns. Leading economists predict 0.9% growth this year, more than four times the 2025 rate.

The fourth quarter of 2025 showed particular strength, with 0.2% growth demonstrating momentum heading into the new year. While challenges remain, including the slower than hoped government spending rollout, the foundation for sustained recovery appears stronger than it has in years.

Germany's economy grew in the final three months of 2025, proving that even Europe's struggling industrial powerhouse can turn things around when consumers gain confidence and governments invest in the future.