Eng
Germany’s economy has contracted for two years in a row and is unlikely to grow significantly in 2025. In 2024, Germany’s GDP shrank by 0.2%, following a 0.3% drop in 2023, the Federal Statistical Office of Germany announced in January. Germany’s government has revised its economic growth forecast for 2025 down to 0.3% (from 1.1%), with Federal Minister for Economic Affairs Robert Habeck saying Germany is stuck in stagnation.
Several factors contribute negatively to this development. These include dismantling production models based on cheap energy from Russia, welfare policies that weaken the incentive of the poor to work more, and China becoming a strong industrial competitor to Germany.
Germany’s industry has always been export-orientated, with products being state-of-the-art and of top quality. The PRC used to actively buy a lot of German products. But China’s economic model has evolved a lot. China is shifting to manufacturing high value-added products, which have traditionally been the prerogative of Germany. As a result, some of the demand in niches traditionally dominated by German goods in China has been absorbed by domestic manufacturers, which have grown significantly in recent years.
Chinese industry is now producing the same goods as Germany, and its export capacity is eating into Germany’s share of European and global export markets. Today, the PRC is a leading producer of passenger cars, speciality chemicals, and many industrial machine tools, dominates many sectors of clean technology, and is building expertise in aircraft design and high-tech semiconductors.