The German economy is going through a period of extreme contrasts. While the construction and pharmaceutical sectors are reporting long-awaited growth and business climate indicators signal the end of the recession, the federal budget is grappling with a deficit exceeding 120 billion euros. Optimism in the private sector clashes with a rising wave of layoffs in the automotive industry and persistent uncertainty in international trade, fueled by restrictive US tariff policy.

Construction Sector Rebound

The construction sector is recording its first increase in orders in nearly three years, which experts interpret as a permanent break in the downward trend.

Public Finance Crisis

Germany's budget deficit for 2025 reached a record 120 billion euros, exceeding the strict EU deficit limit of 3% of GDP.

Pharmaceutical Industry Growth

Drug production is becoming a new pillar of industry, recording significant profits despite tense international trade relations.

Automotive Industry Layoffs

Despite the overall improvement in GDP, automotive corporations are continuing employment reduction programs, weakening the labor market in the southern states.

The latest data from the German economy indicates a pivotal moment in several key sectors, though the overall picture remains ambiguous. After years of stagnation, the German construction industry has officially announced passing a “turning point”. The year 2025 brought a clear increase in orders, driven mainly by investments in railway infrastructure and residential construction. Experts from DIW emphasize that the business climate barometer is signaling growth above average for the first time in nearly three years, which could mean a definitive end to the technical recession. The rebound is particularly noticeable in Eastern Germany, where the dynamics of new orders exceed the national average. Simultaneously, the pharmaceutical sector is recording double-digit growth in production and turnover, becoming one of the driving engines of industry. Nevertheless, industry representatives warn of growing uncertainty stemming from global trade conflicts. Meanwhile, Deutsche Telekom is accelerating its digital modernization, planning to cover 25 million households with fiber-optic access. Despite these positive signals, consumer sentiment remains restrained; citizens, instead of increasing spending, are choosing to accumulate savings, which hampers the potential for domestic demand and the full utilization of economic recovery. The German economic model, based on exports and cheap energy, is undergoing deep decarbonization after the cutoff of raw material supplies from Russia, forcing a costly restructuring of the entire industry. Hopes in the private sector are overshadowed by the situation of public finances. The Federal Statistical Office revealed that the budget hole in 2025 turned out to be significantly larger than forecast, reaching a level of 120 billion euros. This translates to a deficit of 3.1 percent of GDP, constituting a breach of EU fiscal discipline limits. The situation is worsened by mass layoffs in the automotive industry, a traditional pillar of German exports. Companies, despite the overall improvement in the business climate, plan further job cuts to cope with the costs of transformation and competition in external markets, such as China or the USA under the administration of Donald Trump. „Die deutsche Wirtschaft nimmt endlich Fahrt auf, doch die gewaltigen Haushaltslöcher begrenzen den Spielraum für notwendige Zukunftsinvestitionen.” — President of the German Institute for Economic Research (DIW).

Mentioned People

  • Marcel Fratzscher — President of the German Institute for Economic Research (DIW).
  • Donald Trump — President of the United States, whose tariff policy raises concerns among German exporters.