Germany Faces Economic Challenges Amid Rising Food Prices and Calls for Major Reform

Germany is grappling with significant economic challenges as food prices surge and business leaders urge comprehensive reforms to stave off a prolonged crisis. Recent reports indicate that between January 2020 and July 2025, food prices in Germany have escalated by an average of 37 percent, with festive season groceries in 2025 alone rising by 21 percent compared to the previous year. Despite these increases, producers such as dairy farmers see little benefit, as retail giants controlling 80 to 90 percent of the market inflate their margins. Critics highlight the practice of discount chains pricing below production costs, a tactic prohibited in many other countries, worsening the strain on producers and consumers alike.

The retail sector experienced a disappointing Christmas 2025, impacted by a poor consumer sentiment rooted in inflation fears and political uncertainties, including pension reform debates. The market research firm GfK noted consumer sentiment has been at its lowest since April 2024, reflecting heightened savings tendencies among Germans.

Against this backdrop, Rainer Dulger, president of the German Employers' Association, has called for bold reforms in 2024 to prevent what he terms a "permanent crisis." Germany is currently enduring its longest economic downturn since the Federal Republic's founding, with minimal GDP growth expected in 2025 following two consecutive years of recession. Dulger advocates for reducing bureaucracy, adjusting social welfare policies to make work more attractive, and reforming the pension system, including potential increases to the retirement age. He stresses these steps are vital to maintaining a robust economy capable of supporting Germany's foreign and security ambitions.

Chancellor Friedrich Merz earlier described the current period as a "turning point in history" marked by geopolitical tensions such as the Russian war in Ukraine and China's assertiveness, reinforcing the urgency for economic adaptation. A pension commission has been established to recommend reforms, with proposals due by mid-2026.

These intertwined issues underline the pressing need for coordinated government action to stabilize Germany's economy, alleviate consumer burdens, and foster an environment conducive to investment and sustainable growth.