German economy in deep crisis

The German economy is in deep crisis, with gross domestic product likely to contract 0.1% this year, the BDI industry association said on Tuesday, putting it on track for three years of declining growth for the first time since reunification.

At the same time, the euro zone will grow by 1.1% and the global economy by 3.2%, BDI said, indicating Germany will remain one of the currency bloc's laggards in economic terms.

"The situation is very serious, growth in industry in particular has suffered a structural break," BDI president Peter Leibinger said in Berlin. East and West Germany were reunited as a single sovereign state in the 1990s.

Increasing competition from abroad, high energy costs, still elevated interest rates and uncertain economic prospects have taken their toll on the Germany economy, which contracted in 2024 for two years in a row.

Disagreements over how to revive Europe's largest economy contributed to the governing coalition's demise, with the dire economic situation reflected in the storied auto industry as Volkswagen undertakes steep cost cuts to remain relevant.

The economic crisis is more than just a consequence of the pandemic and Russia's invasion of Ukraine, Leibinger said.

The problems are home-made and the result of a structural weakness since 2018 that governments have failed to tackle, Leibinger said.

"Public investment in modern infrastructure, in the transformation and the resilience of our economy, is urgently needed," Leibinger said, also calling for a reduction in bureaucracy, lower energy prices and a clear strategy for strengthening the German innovation and research landscape.

With a view to Brussels, Leibinger said it was important for Germany to take on a more confident leadership role again and for Europe to become more strategically independent.

The BDI president also addressed US President Donald Trump's return to the White House and his tariff threats, which could make the export-oriented German economy shrink by almost 0.5% in 2025 instead of the forecast 0.1% decline.

"The most important thing will be to enter into a transactional relationship and to have strategically important competencies that our partner can only find with us," Leibinger said.