Geneva, Switzerland

Economics September 29, 2025

German Economic Decline

Germany is going through a delicate phase in its history. Since unification in 1990, the government in Berlin has been the beacon of economics, industry, and political leadership in Europe. Lately, this role has been increasingly fading. The political crisis that has gripped Germany has brought great instability to the country. The crisis apparently ended on May 6, 2025, with the appointment of Joachim-Friedrich Martin Josef Merz from the Christian Democratic Union (CDU) as the new chancellor. However, a period of political confusion has persisted, which has also caused significant damage to the economy. Since 2019, Germany has lost more than 9% of its industrial production. Other Western European countries, such as France and Italy, have also recorded deficits. Meanwhile, countries like Spain have registered production growth as we can see in the chart below. Rising of energy costs seems to be the main reason of the economic crisis. Although the price peak reached in 2022 is now far away. Anyway, currently the gas prices are four times higher than those in the US. This obviously impacts electricity prices as well. Another factor to analyze is China’s increasingly dominant market.

While at the beginning of the century, China primarily represented a huge new emerging market for many European producers, today it has also become one of their main competitors. A clear example of this trend is the automotive sector, which is really important in Germany. It is precisely the automotive sector that is experiencing the most negative decline, followed by other production sectors, such as metallurgy and chemicals. The German economy, in fact, began to show the first signs of fatigue, further than those seen during the pandemic, in 2023 with a decline in GDP, before entering a phase of economic stagnation, in which the country is gasping for breath. Manufacturing prices have skyrocketed, while exports of products have also fallen sharply. German GDP growth has stalled in recent years and continues to lose ground not only compared to its European neighbors, but also to other global economies, as can be seen from this chart comparing GDP growth in Germany, the United Kingdom, and the United States.

German dual crisis (economic and political) is in opposition to the Bundesrepublik identity: it is a country that for decades, starting with the incredible recovery after the fall of the Berlin Wall in 1989, has driven the economy of the Old Continent and subsequently the European Union. This driving role has been played even more prominently since Brexit in 2017, which ratified the start of the process of Great Britain’s exit from the EU.

Consequently, the crisis in this country, which has long been one of the most driving forces, risks leading to an economic and productive decline that, like a cascade effect, could spill over across the entire continent. At this moment, therefore, the German nation is facing a multipolar crisis: both its GDP and its manufacturing industry are being affected, both structurally, which undermines its fundamental stability. The golden seat on which Germany has long rested in Europe, and more specifically, within the European Union, is crumbling due to increasingly pronounced fractures. The real question is: how much will the German crisis impact the cohesion and solidity of the European system and the related economic repercussions, both nationally and globally?

By Domenico Greco

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