The German economy ended 2025 with mixed results. The Federal Statistical Office revised data on the budget deficit, which ultimately amounted to €119.1 billion, representing 2.7% of GDP. Simultaneously, the fourth quarter saw economic growth of 0.3%, driven by private consumption and government spending. Despite the difficult fiscal situation, Berlin managed to stay within the EU's debt limit, although future forecasts are causing concern among experts.

Revision of the budget deficit

Germany's budget deficit for 2025 amounted to €119.1 billion (2.7% of GDP), exceeding earlier estimates of 2.4%.

Unexpected GDP growth

The German economy grew by 0.3% in the fourth quarter of 2025, allowing it to avoid another year of stagnation.

Social spending vs. finances

Debt servicing costs and spending on pensions and benefits grew faster than tax revenues, burdening the federal budget.

Disputes over economic advice

The departure of Ulrike Malmendier from the Council of Economic Experts is causing controversy and indicates ideological divisions within the government.

The German state budget closed 2025 with a deficit of €119.1 billion, marking a significant increase compared to €115.3 billion the previous year. The latest data from the Federal Statistical Office (Destatis) turned out worse than preliminary estimates from January, which had assumed a gap of around €107 billion. The main reason for the deepening budget hole was that public expenditure grew faster than tax and contribution revenues. The federal government is responsible for nearly two-thirds of the entire public sector debt, while the federal states managed to limit their deficits. Nevertheless, Germany kept the deficit within the limits of the EU's Stability and Growth Pact, which allows a maximum of 3% of GDP. Simultaneously, surprisingly optimistic news about the economy's condition arrived. Germany's Gross Domestic Product in the fourth quarter of 2025 increased by 0.3% quarter-on-quarter, breaking the period of stagnation that had lasted since 2022. The driving force behind this growth was private consumption (up 0.5%) and government spending (up 1.1%). For the whole of 2025, GDP grew by a modest 0.2%, allowing Europe's largest economy to avoid a recession. Construction investments, which jumped by 1.6%, also proved to be significant support, although external demand remained weak due to the difficult situation on global markets and trade restrictions. Since 2009, the German constitution has included the so-called debt brake, which drastically limits the possibility of taking on new debt. In the face of the need to modernize infrastructure and increase defense spending, this mechanism has become the subject of heated political disputes.However, the prospects for the coming years remain uncertain. The Bundesbank warns of a further increase in the deficit, which could reach 4.5% of GDP by 2027 if reforms to the investment financing system are not introduced. The situation is complicated by political friction surrounding the debt brake (Schuldenbremse) and controversies related to the composition of the Council of Economic Experts. The non-renewal of the term of Ulrike Malmendier, a respected economist advising the government, is being interpreted as a sign of the politicization of economic debate in Berlin. Germany: 2024: 115.3, 2025 (preliminary): 107.0, 2025 (final): 119.1 „Damit endete das konjunkturell wechselhafte Jahr 2025 mit einem Anstieg der Wirtschaftsleistung.” — Ruth Brand

Mentioned People

  • Ruth Brand — President of the Federal Statistical Office (Destatis)
  • Ulrike Malmendier — Leading economist whose contract with the Council of Economic Experts will not be renewed.