Germany's Economy Faces Structural Challenges Amidst Ongoing Crises and Weak Business Outlook

Germany's economy continues to struggle under the weight of multiple overlapping crises since 2020, including the COVID-19 pandemic, the war in Ukraine, and geopolitical tensions involving the United States. According to a study by the Institute of the German Economy (IW), these disruptions have led to a staggering loss in value creation estimated at 940 billion Euros over the period from 2020 to 2025. For 2025 alone, while the total revenue of Germany's top 100 companies inched up by 0.6% to about 1.55 trillion Euros, their pre-tax profits suffered a sharp 15% decline, falling to 102 billion Euros. Economic growth for 2025 was minimal at 0.2%, narrowly avoiding a protracted recession.

This weak macroeconomic environment is reflected in business sentiment. The Institute for Employment Research (IAB) reports that 76% of businesses achieved positive results in 2024, representing a drop from prior years and well below pre-pandemic levels. The manufacturing sector remains particularly challenged, with expectations of a 1.68% employment decline in 2025. Export-oriented companies, especially those with business ties to the USA, anticipate further difficulties amid an 8% decrease in exports in early 2025.

The IW study highlights the compounded economic damage from the pandemic (~185 billion Euros in 2020), followed by the Ukraine war and energy price shocks (~85 billion Euros in 2022), and exacerbated by renewed US trade policies in 2025 causing additional losses of 235 billion Euros. These crises equate to an economic loss exceeding 20,000 Euros per employee, about 20% of annual output.

Despite these pressures, IW expert Michael Grömling underscores Germany's strengths in stable institutions, a well-educated workforce, and solid legal structures as key competitive advantages. However, he stresses urgent reforms to address structural deficits like high energy prices, increasing social charges, and bureaucratic hurdles to restore economic leadership. Meanwhile, business employment expectations for 2026 show slight optimism, with 13% predicting job growth amid persistent uncertainty.

Overall, Germany grapples with more than a temporary economic downturn; the evidence suggests a structural decline shaped by layered crises and geopolitical uncertainties requiring comprehensive policy responses.