Germany Faces “Dramatic” Economic Decline Amid Stagnation and Falling Investment

By Staff, Agencies

Germany’s economy is experiencing a “dramatic” downturn after years of stagnation and failed policy responses, Clemens Fuest, president of the Munich-based ifo Institute, warned in an interview published Sunday.

A new ifo study shows that German economic output has remained flat since 2018, while public spending on pensions, education, and infrastructure has risen 25% since 2015.

At the same time, corporate investment in machinery and factories has fallen below 2015 levels, signaling weakening industrial confidence.

“Germany has been in economic decline for years. The situation has become dramatic,” Fuest told Bild, warning that the country is slipping into what economists call “Italian conditions”—a prolonged period of stagnation, inefficiency, and structural weakness.

He said millions of Germans are already feeling the impact through falling living standards and urged the government to implement sweeping reforms within six months, including overhauling the pension system and cutting bureaucratic burdens on small and medium enterprises.

Simplifying CO₂ reporting, supply chain documentation, and wage compliance could yield up to €146 billion ($170 billion) annually, Fuest estimated.

Germany’s economy contracted in both 2023 and 2024—the first consecutive annual declines since the early 2000s.

Analysts attribute the slump largely to high energy costs following the loss of cheap Russian gas and to declining industrial competitiveness.

Chancellor Friedrich Merz conceded in August that the country faces a “structural crisis,” with major sectors “no longer truly competitive.”