Economic Key Facts Germany

With a gross domestic product of 4,305 billion euros in 2024, Germany is the third largest economy in the world after the United States and China and just ahead of Japan, making it the largest economy in Europe. In particular, exports of motor vehicles and vehicle parts as well as chemical products have made Germany the third largest export nation in the world to date. At 70%, the service sector accounts for the largest share of the country's gross domestic product (GDP).

In addition, Germany is a top destination for investors, attracting an ever increasing number of companies to make greenfield investment there. As the largest economy in Europe, Germany entices its investors with its central-european location, but simultaneously puts them off with the current deterioration of Germany's situation as an economic destination. 

The US customs and trade policy is dampening the German economy, but the planned high deficit leeway via a special fund and credit-financed defense spending could give the economy a significant boost in the coming year 2026. This is according to the latest spring forecast from the Kiel Institute for the World Economy (IfW Kiel). According to the forecast, the outlook for 2025 remains unchanged at stagnation (+/-0.0%). For 2026, however, the institute raised its forecast by 0.6 percentage points to +1.5% compared to December 2024.

According to the forecast, the German economy is suffering massively from structural problems that stand in the way of higher productivity. Industry has recently lost competitiveness and market share. US President Donald Trump's protectionist trade policy is an additional burden.

Business associations are now hoping that Germany will quickly get a government capable of taking action after the general election, which will address the economic problems with appropriate measures in a timely manner. We have analyzed the potential impact of the 2025 general election on Germany for the four key issues of bureaucracy, taxes, the economy and energy.

According to the ifo Institute, business sentiment in Germany also remains skeptical in February 2025 (+/-0.0 points). At 85.2 points, the business climate index is roughly at the same level as last year (January 2024: 83.8 points). In February 2022, i.e. before Russia's invasion of Ukraine, the index was still at 98.1 points.

The government spending ratio, which indicates the government's influence on an economy, is calculated as total government spending as a percentage of GDP. According to the International Monetary Fund (IMF), this amounted to 48.2% in Germany in 2024 and was therefore well above the average of 41.5% for the G7 countries and other major economies such as the UK (43.4%), the USA (37.5%) and China (33.9%).

According to the OECD, the share of tax and social security contributions in total labor costs for average earners in Germany in 2023 was 47.9% for singles without children. This puts Germany in second worst place among the 38 member states of the OECD after Belgium and well above the OECD average of 34.8%, which significantly reduces Germany's attractiveness as an investment location. The rate is also significantly lower in countries outside the EU, such as the UK (31.3%) or the USA (29.9%).

Our Business Destination Germany 2024 study provides a current assessment of Germany as a business location by international investors. 350 CFOs from the largest German subsidiaries of international corporations from the most important investor countries were surveyed as part of the study to find out how they rate Germany as a business location. As this is the fourth time the study has been published every two years, it also enables trend statements to be made.

The KPMG Global Economic Outlook 2024 also provides insights into global growth prospects, challenges and threats.

Our CEO-Outlook 2024/25, for which 1,325 CEOs of large companies around the world were surveyed, including 125 CEOs in Germany, also provides assessments of the economic situation, generative AI, ESG and other current topics.

The current forecasts of German economic research institutes and government organizations on the development of GDP in Germany currently fluctuate between -0.1% and +0.8% for the calendar year 2025:

The RWI is the first institute to expect the recession to persist in the current year. So far, only a few forecasts have taken into account the effects of the punitive tariffs announced by US President Trump, some of which have already been implemented. These affect the German economy both directly (e.g. via the tariffs on steel and aluminum products) and indirectly via the recently imposed tariffs on imports from Canada, Mexico and China. In 2026, German economic output is likely to be around 0.4% lower than without the new tariffs. Over the years 2025 and 2026, the costs are likely to total around 25 billion euros.

German exports fell surprisingly in January 2025. Exports fell by 2.5% compared to the previous month to 129.2 billion euros. Imports, on the other hand, rose by 1.2% to 113.1 billion euros in January 2025.

In January 2025, most German exports once again went to the USA: at 13.0 billion euros, however, -4.2% fewer goods were exported there than in December 2024. The large drop can be explained by a special effect: Fearing tariffs, many exporters had brought forward their exports to the USA in December 2024.

Real (price-adjusted) new orders in the manufacturing sector fell by -7.0% in January 2025 compared to December 2024, adjusted for seasonal and calendar effects. The negative trend in new orders in the manufacturing sector in January 2025 is due to the significant decline in new orders in mechanical engineering (seasonally and calendar-adjusted -10.7% compared to the previous month) and in other vehicle construction (aircraft, ships, trains, military vehicles: -17.6%). Several large orders were recorded in these sectors in the previous month.

According to calculations by the Ifo Institute, German exports to the USA could fall by -15% as a result of the announced punitive tariffs. German car exports to the USA would be particularly hard hit at -32% and pharmaceutical exports there at -35%. Foreign trade with China could also fall by -10% as Chinese companies would have less demand for German intermediate products due to lower exports to the USA.

There is no further easing in German consumer prices for the time being. As in January, the inflation rate in February 2025 was 2.3% higher than in the same month last year. From January to February of the current year, goods and services became 0.4% more expensive. An individual analysis shows that energy prices fell by 1.8% in February compared to the same month last year, compared to a decline of 1.6% in January. Food prices, on the other hand, rose by 2.4% after 0.8% in January. Services cost an average of 3.8% more (January: 4.0%). Core inflation fell from 2.9% to 2.6%.

The number of companies planning price increases in the coming months remained virtually unchanged in February 2025: The ifo Institute's barometer for price expectations fell slightly to 19.4 points in February 2025 (January 2025: 19.5 points).* While service providers are less likely to plan to raise their prices, companies from industry and retail see more scope for rising prices.

*The points indicate the percentage of companies that intend to raise their prices on balance (percentage of companies that intend to lower their prices minus the percentage of companies that intend to raise their prices). If all the companies surveyed intended to increase their prices, the balance would be +100 points. If they all wanted to lower their prices, the balance would be -100.

Current forecasts by German economic research institutes and government organizations on the development of the inflation rate in Germany indicate that the figure will remain at around the current level. For the calendar year 2025, the projections vary between +2.0% and +2.4%:

Trump's election is likely to lead to a renewed rise in inflation. Higher US tariffs will strengthen the dollar against the euro, which will drive up inflation. In addition, the EU could impose tariffs on imports from the US in response to US tariffs. This would also increase inflation. Overall, inflation in the eurozone and in Germany could then be up to 0.5 percentage points higher in 2026, according to Commerzbank's calculations.

The number of unemployed people in Germany fell slightly by 3,000 in February 2025 compared to January 2025: to 2.989 million. Adjusted for seasonal fluctuations, however, the number of people without a job increased by 5,000 compared to the previous month. The number of unemployed also rose year-on-year, by 175,000. The unemployment rate remained at 6.4%

The economic weakness remains visible on the labor market. Short-time working is still at an elevated level. Of around 220,000 recipients in December 2024, 80% to 90% are employed in the manufacturing sector. Demand for labor is also continuing to decline.

Sales of electric cars in Germany slumped in the past year 2024. Only around 380,600 pure electric vehicles were newly registered over the course of the year. This corresponds to a decline of more than a quarter (-27.5%) compared to the previous year 2023. The share of electric cars in all new registrations also fell - to 13.5%. In the previous year, almost one in five newly registered cars (18.4%) was a battery-powered car. One of the main reasons for the slump in e-car sales figures in 2024 as a whole is the sudden end of the state purchase premium in December 2023.

Overall, fewer new cars were also registered in Germany than in the previous year - there were a total of 2.8 million new car registrations last year. That is one percent less than in 2023.

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