The German economy recorded growth of 0.3% in the fourth quarter of 2025, avoiding a third consecutive year of stagnation. However, positive signals from the DIW business climate barometer, which crossed the growth threshold for the first time in nearly three years, contrast with deteriorating consumer sentiment and a record-high propensity to save. Simultaneously, the state's budget deficit turned out higher than forecasts, reaching 119.1 billion euros.

German GDP Up

The economy grew by 0.3% in the fourth quarter of 2025, supported by state expenditures and construction investments.

Record State Deficit

The budget hole reached 119.1 billion euros, a result worse than official government forecasts.

Consumers Full of Pessimism

Germans' propensity to save is the highest since 2008, which is dampening domestic demand despite rising wages.

Threat to the Labor Market

The Ifo Institute reports that despite better economic conditions, companies in the automotive sector are planning employee layoffs.

Data published by the Federal Statistical Office (Destatis) confirms that Germany's gross domestic product grew by 0.3% in the last quarter of 2025 compared to the previous period. For the entire year, the economy grew by 0.2%, a modest result but one that breaks a two-year period of GDP contraction. The main drivers were state expenditures, especially in the defense and infrastructure sectors, as well as private and construction investments. GDP Germany gained momentum thanks to a loosening of fiscal policy, although the economic horizon is still clouded by trade tensions with the USA. The business climate barometer DIW Berlin rose to 101.6 points in February, exceeding the neutral barrier of 100 points for the first time in nearly three years. Geraldine Dany-Knedlik from DIW points to increasingly clear signals of emerging from the deadlock. However, the optimism of research institutes and the stock market is not translating to the household sector. The consumer climate index measured by GfK and NIM unexpectedly fell to -24.7 points. Germans are currently showing the highest propensity to save since the 2008 financial crisis, stemming from concerns about the future and geopolitical uncertainty. „Es zeigt sich weiter die Tendenz, dass steigende Einkommen aus Vorsichtsmotiven lieber gespart als konsumiert werden.” (The trend continues that rising incomes are being saved rather than consumed out of precautionary motives.) — Rolf Bürkl The state's budgetary situation is causing concern among analysts. The public finance deficit in 2025 amounted to 119.1 billion euros, representing 2.7% of GDP. This result is worse than January estimates of 107 billion euros. The budget is primarily burdened by rising social spending, debt servicing costs, and investments in defense. Germany has for years applied the so-called debt brake (Schuldenbremse), which after the pandemic became the subject of intense political disputes between the investment-oriented left and the fiscally disciplined Christian Democrats.Despite the recovery, Ifo reports a decline in its employment barometer, suggesting that many companies, particularly in the automotive industry, are planning job cuts due to competitive pressure from China and tariff restrictions. DIW Business Climate Barometer: 2025-12: 92.4, 2026-01: 94.6, 2026-02: 101.6 119.1 mld € — was the deficit of Germany's public finance sector in 2025 [{"aspekt": "GDP Growth (annual)", "przed": "-0.3% (2024)", "po": "+0.2% (2025)"}, {"aspekt": "Budget Deficit", "przed": "115.3 bn €", "po": "119.1 bn €"}, {"aspekt": "Propensity to Save", "przed": "9.4 pts", "po": "18.9 pts"}]

Mentioned People

  • Geraldine Dany-Knedlik — Head of the Business Cycle Department at DIW Berlin
  • Ruth Brand — President of the Federal Statistical Office (Destatis)
  • Rolf Bürkl — Consumption Expert at the NIM Institute