Germany’s Economy Slumps As Recession Drags Into 2025

Germany is set to endure its third consecutive year of economic decline, making it the nation’s most prolonged recession since World War II. The Handelsblatt Research Institute (HRI) forecasts a 0.1% contraction in 2025 after two straight years of 0.3% declines.

HRI’s chief economist Bert Rürup characterized the situation as a historic economic crisis. He noted that inflation, energy costs, and the lingering effects of the pandemic have left Germans financially worse off. Public concern about the economy remains high as the country approaches its February snap election.

Corporate bankruptcies reached their highest level in nearly a decade last year. Creditreform reported 22,400 business insolvencies in 2024, a 25% increase from 2023. Consumer bankruptcies also rose sharply, climbing by 8.5%. Credit insurer Allianz Trade predicts the situation will worsen in 2025.

The industrial sector’s outlook remains bleak. Manufacturing and construction have seen steady layoffs, with many companies announcing job cuts weekly. The Ifo business climate index in December fell to its lowest point in more than three years, reflecting low confidence among business leaders.

The economic challenges have placed added pressure on Economic Affairs Minister Robert Habeck, who is running for chancellor. Critics have questioned his ability to lead during such a critical time, citing his academic background in philosophy as a potential weakness.

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