German economy grows 0.2 percent in 2025
Industrial production 1.6 percent down in 2024
▪ Economic output turned up again in fourth quarter 2025 after teetering in the third. Economic recovery initially set to remain weak this year.
▪ Consumption expenditure of private households expected to slow down and grow 0.8 percent this year. Consumers remain cautious amid high economic uncertainty.
▪ Gross fixed capital formation anticipated to turn up for the first time in four years. Special fund for infrastructure and climate neutrality set to inject impetus alongside slight recovery in residential construction.
▪ Demand from EU countries should prop up foreign trade, with export prospects up slightly at last count. Uncertainty regarding trade with the United States remains high.
▪ Industrial production in 2025 1.6 percent lower than in 2024, its fourth consecutive annual drop.
German economy
Gross domestic product rises after two years of downturn
After stagnating in the third quarter, the German economy expanded in the last quarter of the year Gross domestic product was 0.3 percent higher in the fourth quarter 2025 than in the third following price, calendar and seasonal adjustment, according to the German Federal Statistical Office. Year on year, real economic output was 0.6 percent higher on account of the higher number of workdays in the fourth quarter (+0.4% after calendar adjustment) The Federal Statistical Office confirmed its calculated GDP growth rate of 0.2 percent for 2025 overall in late January at the end of February. This is the first increase in GDP after two years of downturn.
In the fourth quarter 2025, Germany’s economic output was generated by a workforce of 46.1 million employees. Employment was thus slightly lower than last year (down 58,000 workers). The total number of hours worked by all employees nonetheless nudged up 0.7 percent.
change over previous year quarter change over previous quarter change over previous year
Source: Federal Statistical Office
On the output side of GDP, gross value added increased by 1.1 percent in the fourth quarter 2025 in real terms compared to the same quarter last year. Gross value added rose across all economic sectors apart from financial and insurance services, which dropped 2.5 percent. The strongest increase was recorded by the information and communication sector (+2.7%), followed by public service providers (+1.7%), the heavyweight sector retail, transport and hospitality (+1.6%) and property (+1 5%). For the first time in four quarters, gross value added was also up slightly among corporate service providers (+0.4%). Activity among other service providers also expanded following a weak period over the summer quarters, rising 0.3 percent Gross value added in manufacturing turned up for the first time in more than two and a half years, climbing 0.7 percent. Even the construction sector
Growth in real GDP in percent
joined the broad upward trend, achieving a slight rise of 0.4 percent in gross value added in the final quarter of the year despite notching up its fifth year of recession.
On the expenditure side of GDP, private consumption expenditure increased 1.8 percent year on year following price adjustment In the fourth quarter 2025, consumers spent more particularly on furnishings and household goods (+4.1%) and healthcare (+4.0%). Above-average growth was also measured in spending on clothing and shoes (+3 7%), leisure, entertainment and culture (+3.2%), information and communication (+3.0%) and transport (+2.5%). Weaker growth was recorded in consumer spending on hotel and restaurant services and on housing, energy and water supply, which only rose 1.4 percent in both cases. Consumers spent altogether 1.4 percent more on food and nonalcoholic beverages. The only category in which consumer spending decreased was alcoholic beverages and tobacco, which was 1.1 percent down year on year. As in the two previous quarters, public consumption expenditure increased slightly less than private consumption expenditure, rising 1.3 percent in the fourth quarter 2025.
The weak upward trend in gross fixed capital formation accelerated in the final quarter of the year, rising 1.3 percent year on year after recording growth of 0.5 percent the previous quarter. Investment in plant and equipment was also up year on year (+0.4%) for the first time in more than two years. The downward trend in construction investment that has persisted for just under four years appears to have come to an end. Investment was up across all segments. Investment in residential construction (+0.3%) turned up for the first time since the first quarter 2022. Public construction investment expanded by 1.8 percent overall, fuelled largely by upward investment in building construction (+4.0%). The primary upward driver in commercial construction (+1.8%), on the other hand, was civil engineering (+12.3%), while building construction drooped slightly. Investment in other assets (including software and patents) was 3.8 percent higher year on year.
Foreign trade picked up again in the fourth quarter 2025. Goods exports increased by two percent year on year following price adjustment. The upward momentum was driven primarily by strong growth in the export of data processing equipment and electrical equipment. Services, in contrast, only inched up marginally (+0.1%) All in all, exports increased by 1.6 percent compared to the same quarter last year. Imports also recorded a clear year-on-year increase in the fourth quarter, rising four percent. Growth was constituted entirely by expanded goods imports (+6.4%), with imports of food, metal products and motor vehicles and motor vehicle components rising particularly The import of services was down by 1.2 percent, brought down particularly by lower transport, electronic data processing and other business services. With exports expanding much less than imports, net exports made a negative contribution to growth of 0.9 percentage points.
Trade in goods picks up again at the end of 2025
Goods exports were 10.33 billion euros or 2.7 percent higher in the fourth quarter 2025 than in the same period last year (seasonally adjusted figures broken down by country not available). In absolute terms, the steepest increase was in trade with France, with goods exported here rising by 2.48 billion euros or nine percent, followed by Switzerland and Poland. Goods exports here were up by more than two billion euros in both cases. All in all, goods exports expanded more than average particularly among EU partner countries. Exports to Austria rose by 1.84 billion euros, almost ten percent. Exports to Spain recorded double-digit growth, surging 1.79 billion euros, or 13.6 percent. Outside the euro area, exports were particularly strong to the Czech Republic (+1.0 billion euros or +8.1%) US tariff policy pushed exports to the United States down by a clear 5.59 billion euros or 14.3 percent. Goods
exports to Japan were also down by just under one quarter or 1.37 billion euros. The drops in exports to India (-492 million or -10.4%) and the United Kingdom (-477 million or -2.4%) were moderate by comparison. EU sanctions against Russia continued to have a downward effect, with exports to the country dropping by 166 million euros or 9.1 percent down to 1.67 billion euros. Compared to the last quarter before the war on Ukraine, exports were 75.6 percent lower.
Sources: Federal Statistical Office, own calculations
Goods imports to Germany rose by a much more pronounced 15.13 billion euros or 4.6 percent in the same period. Among the individual countries of origin, imports from China increased the most, rising 3.34 billion euros of 7.9 percent, followed by imports from the Netherlands and Italy. Imports from these two countries increased by 2.05 billion euros in both cases. Imports were also up by more than ten percent from France (+1.76 billion euros) and Austria (+1.38 billion euros). Imports from Germany’s Eastern European countries, the Czech Republic (+968 million euros or +6.6%) and Romania (+635 billion euros or +14.7%), also recorded sizeable growth. Imports from Russia continued their downward trend, shrinking by a further 16 percent year on year and down by almost 97 percent
compared to the fourth quarter 2021. Among non-European trade partners, imports from Vietnam were up by one sixth (+635 billion euros), from Canada by one third (+602 million euros) and from the United States by 2.7 percent (+595 million euros). The value of imports from Norway are estimated to have dropped by one fifth or 1.42 billion euros on account of the lower prices for fossil fuels.
Employment continues to inch down at start of 2026
According to preliminary data from the Federal Statistical Office, the number of people in employment within the country dropped by 13,000 in January 2026 after seasonal adjustment, following a drop of 7,000 in December. Compared to January 2025, the number of people in employment was down by 94,000 or 0.2 percent to 45.66 million
Difference in the number of workers making social security contributions from the same month last year (right axis)
*seasonally adjusted in million
Source: Federal Employment Agency
Despite the lower level of employment, employment subject to social security contributions increased slightly. According to Federal Employment Agency projections, a total of 34.98 million people were in employment subject to social security contributions in December 2025 (latest figure available). Seasonally adjusted, that was 5,000 more people than in November 2025 but 41,000 less than one year ago. The number of people in full-time employment subject to social security contributions was 227,000 or 0.9 percent lower year on year, while the number of people in part-time employment subject to social security contributions increased by 187,000 or 1.7 percent in the same period.
The trends among other forms of employment at last count were mixed. The number of self-employed people including contributing family members decreased by 27,000 or 0.7 percent in the fourth quarter 2025, down to 3.65 million The number of people exclusively in marginal employment continued its downward trend of the last few years, dropping by 7,000 after seasonal adjustment, according to preliminary Federal Employment Agency projections. At 4.07 million in December 2025, that is 85,000 or two percent less than one year ago. Going the other way, the number of people in marginal employment as a side job was up by 36,000 or one percent, up to 3.51 million. The number of unemployed people in February 2026 was 3.09 million, which is 80,700 or 2.7 percent higher than
Employed persons covered by social security (left axis)
Unemployed persons (right axis)
German labour market*
one year ago. The unemployment rate in February 2026 was thus 6.3 percent as calculated by the Federal Employment Agency or four percent according to the ILO definition
Large orders cause spike in incoming orders at end of 2025
Following on from its strong performance in November, industry also posted a clear increase in incoming orders in the last month of last year. According to figures from the Federal Statistical Office, orders in December 2025 were 7.8 percent higher than in the previous month following seasonal and calendar adjustment. The increase was fuelled largely by solid growth in orders in metal production and machinery manufacturing. As in November, large orders contributed substantially to the surge in orders. Excluding large orders, incoming orders were only 0.9 percent higher in December than in November 2025.
New orders, manufacturing
Change over previous year, two-month-average, in percent (right axis)
Volume index in manufacturing, two-month-average, seasonally adjusted (left axis)
Change over previous quarter (q-o-q), in percent
Source: Federal Statistical Office
The December figures round off the figures for the fourth quarter 2025 and show that incoming orders increased 9.6 in the final quarter of 2025 compared to the previous quarter following seasonal and calendar adjustment. Compared to the fourth quarter 2024, orders were up by 7.6 percent. Furthermore, in the fourth quarter 2025, incoming orders reached their highest level in three years and were four percent higher than before the outbreak of the pandemic (fourth quarter 2019).
Looking at the origin of orders in the fourth quarter 2025, domestic orders were 19.2 percent higher than in the third quarter 2025 and 14.3 percent higher than one year ago. Foreign orders were 3.2 percent higher than in the previous quarter overall (euro area: +6.2%; non-euro countries: +1.4%) and 3.1 percent higher than in the fourth quarter the previous year, with growth from within the euro area (+7.3%) again much stronger than outside of the euro area (+0.4%)
Among the main groups of industrial goods, the producers of intermediates received 1.4 percent more orders in the fourth quarter year on year, with demand from abroad increasing by 1.8 percent, slightly outstripping demand from at home (+1.1%) Capital goods producers saw their incoming orders surge eleven percent in the fourth quarter, largely on account of a very steep increase in domestic demand (+25.4%). The foreign demand for capital goods increased by a much more moderate 3.7 percent. The producers of consumer goods recorded an increase in orders of eight percent in the final quarter of the year. In contrast to capital goods producers, foreign demand was stronger in this case, expanding nine percent compared to a 6.3 percent rise in domestic demand.
Order books fattening up
The rise in incoming orders at the end of 2025 is gradually lifting the backlog in orders. According to ifo Institute figures, the reach of orders in hand in the manufacturing sector had increased to 3.7 production months at the start of the first quarter 2026. This is 0.2 production months more than the average over the last ten years. Among the main industrial sectors, the backlog of orders among the producers of intermediates, at 3.2 production months, was slightly higher than on average over the last ten years. Among capital goods producers, the reach of orders in hand was at five production months, only level with last year despite a tangible increase over the turn of the year. Among consumption goods producers, the backlog of orders dropped to 1.8 production months at the start of the year, which is 0.4 production months less than on average over the last ten years.
According to the figures available from the Federal Statistical Office as of December 2025, the order backlog in the manufacturing sector after price adjustment was 7.1 percent higher than in the same month one year ago. This was also the eleventh consecutive increase here. While unfinished orders from at home increased by nine percent compared to December 2024, the backlog of orders from abroad was up by a somewhat more moderate 5.8 percent.
Industrial production down for the fourth consecutive year in 2025
After rising for three consecutive months, production in the manufacturing sector was three percent down on the previous month in December 2025 following seasonal and calendar adjustment. Production was also down year on year by a slim 0.3 percent. Among energy-intensive companies, the decrease was much less pronounced month on month (-0.9%), but a clear 2.6 percent lower than last year. While energy production dropped 1.8 percent in December compared to the previous month and following seasonal and calendar adjustment, construction activity increased again (+3.0%) All in all, the output of the production sector (manufacturing, energy and construction) was 1.9 percent lower than in November 2025 and 0.6 percent lower than in December 2024.
The December figures complete the results for the fourth quarter 2025. Following seasonal and calendar adjustment, industrial production was 0.9 percent higher than in the third quarter. Year on year, production was also up for the first time in more than two years (+0.3%). Compared to the last quarter before the outbreak of the Covid pandemic in 2020, industrial production was nonetheless 10.1 percent lower in the fourth quarter 2025. In 2025 overall, industrial production is estimated to have been 1.6 percent lower than in 2024. This would be the fourth annual decrease in industrial production following a drop of 4.8 percent in 2024, 1.2 percent in 2023 and 0.2 percent in 2022.
Sources: Federal Statistical Office, own calculations
Among the main industrial groups, performance was mixed in the fourth quarter 2025. After rising quarter on quarter in the third quarter, output among producers of intermediates fell 0.3 percent in the fourth quarter 2025 Production was also 0.2 percent down year on year. Producers of capital goods increased their output by a tangible 1.9 percent quarter on quarter and, for the first time in two years, also by a slim 0.6 percent year on year The producers of consumer goods also increased their output compared to the third quarter 2025 (+1.0%) and, on a similar scale, year on year (+0.9%).
Among the individual industries, performance in the fourth quarter year on year was also mixed. Pharmaceuticals increased their production the most by far, with an increase of 10.7 percent, followed by other transport equipment (+2.8%). Motor vehicle manufacturing and the electro industry stepped up their output to a similar degree, with a rise of 1.6 and 1.7 percent respectively. Going the other way, the chemical industry (-2.9%) and textiles and clothing (-2.8%) recorded the steepest drops in production. Production also decreased more than on average among the energy-intensive industries paper (-1.6%), and non-metallic mineral products (-1.9%), followed by machinery manufacturing (-1.3%). Marginal drops in production were recorded by the metal industry (-0.3%) and food (-0.7%).
After four lean years, industrial activity should finally recover this year. Incoming industrial orders recorded a solid rise at the end of 2025, driven by a high number of large orders. These should help stabilise production levels in the further course of the year. Sentiment indicators such as the ifo business climate for the manufacturing sector and the purchasing managers’ index are also pointing towards an increase in economic activity, with the latter climbing to 50.7 points in February 2026 This is the first time that this index has been above the threshold of 50 index points indicating expansion
since June 2022. The manufacturing sector has also started out 2026 with a small positive carryover If industrial production remains at the fourth quarter 2025 level this year, this would correspond to a slim increase of 0.1 percent.
Production, manufacturing
Change over previous year, two-month-comparison, in percent (right axis)
Volume index in manufacturing, two month average, seasonally adjusted (left axis)
Veränderung im Vergleich zum Vorquartal (q-o-q), in Prozent
Source: Federal Statistical Office
Capacity utilisation still rather low
At the start of 2026, industrial capacity utilisation recorded its first quarter-on-quarter drop in one year. According to figures from the ifo Institute, the utilisation rate of production facilities in the manufacturing sector was at 77.5 percent at the start of the first quarter of the year. This is 0.6 percentage points lower than in the previous quarter but 0.8 percentage points higher than one year ago. The quarterly utilisation rate was thus still 5.5 percentage points lower than on average over the last ten years. In the manufacturing sector excluding food, capacity utilisation was 0.9 percentage points higher than one year ago but 5.7 percentage points lower than on average over the last ten years.
Among the individual industries, capacity utilisation in motor vehicle manufacturing was 1.9 percentage points lower year on year and, at 82.3 percent, remained below its long-term average (85%). Among producers of metal products, capacity utilisation was tangibly lower at last count (-2.0 percentage points). Compared to one year ago, capacity utilisation was 1.3 percent lower and as much as 8.4 percent below the ten-year average. Although capacity utilisation increased amongst producers of chemical products and electronic equipment at the start of the year, it was still just under four percent lower than the long-term average in the electro industry and more than eight percent lower in the chemical industry. Machinery manufacturing also displayed a worrying trend, with capacity utilisation further downward at the start of the year and, at 77.2 percent, eight percentage points lower than the long-term average. The situation was similar for producers of data processing equipment, with capacity utilisation even lower, down 8.6 percentage points. In the pharmaceutical industry, capacity utilisation experienced the
strongest drop, losing more than four percent, but it was still only 0.6 percentage points lower than its long-term average. In textiles, capacity utilisation at 70.3 percent was higher than in the previous quarter and higher year on year, but nonetheless precariously low compared to the ten-year average of 77.4 percent In food, tobacco and alcoholic beverages, capacity utilisation was only slightly down but still 3.2 percentage points lower than on average over the last ten years.
Manufacturing revenue continues downward in 2025
In the fourth quarter 2025, manufacturing revenue following price adjustment was level with the previous quarter. Year on year, revenue was down by 1.1 percent. Primary downward factor here was the weak result for foreign revenue at the end of the year, which was two percent lower than in the fourth quarter 2024. Revenue from domestic sales were only down by a slight 0.2 percent in the same period. For 2025 overall, revenue was down by 1.5 percent in real terms. Domestic revenue was down by 1.6 percent, slightly more pronounced than the drop in foreign revenue (-1.3%).
Manufacturing revenue* in Q4 2025
Other transport equipment production
Metal industry
Pharmaceuticals
Electronic industry
Glas, ceramics, stone, industrial minerals
Mashinery manufacturing
Food and Luxury food Manufacturing
Textiles, fashion & leather
Chemical industry
Motor vehicle production
*Change in percent, year on year
Source: Federal Statistical Office
In nominal terms, manufacturing revenue in the fourth quarter 2025 was 1.4 percent down year on year. This was the tenth quarterly decrease in a row. The strongest drop in revenue was recorded by the paper industry (-5.4%) followed by motor vehicle manufacturing (-5 1%) and the energyintensive chemical industry (-4.2%). Above-average drops were also registered by the textile industry (-3.0%) and among producers of food, alcoholic beverages and tobacco (-1.7%)
Substantial increases, on the other hand, were recorded by other transport equipment, where revenue increased by more than ten percent in nominal terms, and in the metal industry where revenue was up by 6.8 percent. Revenue was also up tangibly among pharmaceutical producers (+4.3%) and in the electro industry (+2.8%). The energy-intensive non-metallic mineral industry recorded a slight increase in revenue at the end of the year (+0.9%) while revenue stagnated amongst machinery manufacturers.
Ifo business climate: sentiment brightens at start of year
Sentiment in the German economy brightened up in February 2026, with the ifo business climate index rising one percent after stagnating in January. Companies rated their current situation as improved for the fourth time in a row. For the first time in three months, companies were also more optimistic about their prospects for the next six months. Among the individual sectors, sentiment improved the most among service providers, who were more satisfied with current business and considerably more optimistic about the future. Sentiment among wholesalers and retailers deteriorated slightly. Companies here rated their current business as somewhat worse but upwardly revised their prospects for the next six months. While wholesalers recorded slight upward trends, sentiment clouded over tangibly among retailers. Sentiment in mainstream construction has recovered, with upward movement for the fourth consecutive month. Construction companies surveyed rated their current situation as slightly improved, as they had already at the start of the year. Prospects for the next six months were also brighter. In the manufacturing sector, sentiment also continued to improve in February, with companies again more satisfied with their current situation but slightly less positive about their prospects for the next six months. Export prospects improved for the third successive time in February 2026, with companies that were positive about their export prospects even constituting the majority.
Ifo Business-Cycle Clock
Outlook
After a weak period over the summer quarters, the German economy avoided contracting for the third consecutive year by turning up in the last quarter of 2025. After registering its second strongest quarterly growth of the last three years in the final quarter of the year, the German economy managed to start out the new year with a positive carryover of 0.2 percentage points. Even if economic activity stagnates in the following four quarters, growth would still be positive year on year.
Several factors indicate that the economy is set to pick up independently of this statistical effect. Some of these factors already signalised upward momentum towards the end of last year. Private consumption outperformed state consumption in the final quarter 2025, while investment in plant and equipment and in construction also rose. Even residential construction recorded a slight pick-up Not all indicators are pointing upwards for this year yet, however. Industrial capacity utilisation dropped slightly at the start of the year for the first time in four quarters. Early indicators, such as the truck toll mileage index which signalises the development of industrial production going forward, are nonetheless exhibiting slight positive momentum. The weekly activity index published by the Deutsche Bundesbank to measure near-term real economic activity in Germany has also been trending upwards since the fourth calendar week of the year
Furthermore, the special fund for infrastructure and climate neutrality is set to inject impetus into investment activity. We expect investment in plant and equipment to increase by four percent in real terms. Alongside investment in security and defence, replacement investment should also have increased substantially after displaying more than two years of reticence. We expect construction investment to pick up by around three percent. Even though investment here is likely to have been curbed by harsh weather conditions at the start of the year, as in the past, this is likely to be compensated for in the further course of the year. For one, residential construction should recover slightly following more than five years of downturn. Although construction costs and mortgage rates are still high, the number of approved apartments was up by more than ten percent last year. Civil engineering should also continue its upward trajectory fuelled by investment in transport infrastructure and additionally by the special fund for infrastructure and climate neutrality. Investment in other assets (software, research and investment) is set to rise by four percent, on a similar scale to last year. All in all, gross fixed capital formation is thus expected to increase by 4.3 percent over last year.
Private consumption is also expected to be upward this year. Inflation rates have recently been close to the two percent level targeted by the European Central Bank and are therefore lower than the increase in nominal wages thus increasing real purchasing power. Other positive factors for real purchasing power are lower grid fees and the termination of the gas storage neutrality charge. On the other hand, statutory social insurance contributions have continued to rise. Furthermore, geopolitical tensions and upcoming reforms of the social security systems are exacerbating uncertainty among consumers and leading to a heightened tendency to save money rather than spend it. These are the main reasons identified by the consumer research institute, GfK, to explain why the consumer climate index has stagnated most recently despite rising income expectations. Considering all these factors, we expect private consumption to increase by 0.8 percent in real terms this year. Together with state consumption expenditure, which is scheduled to increase by 2.4 percent in real terms according to federal government estimates, consumption expenditure is heading to increase by 1.3 percent this year.
German foreign trade is only likely to participate marginally in the global economic recovery this year. While trade with Germany’s main trade partners within the EU remains brisk, uncertainty regarding trade with the United States is set to remain high despite the ruling that the tariffs were unlawful. It is currently not possible to foresee what the level of tariffs will be over the course of this year. Furthermore, the price competitiveness of German industry is likely to deteriorate further compared to China which will also have a negative effect on German exports, as will the war in the Middle East. We therefore expect exports to increase by only around 0.6 percent this year. Imports are likely to rise by 2.5 percent, which is not quite as much as in the last two years. The latest turn of event in tariffs in the United States should alleviate the situation somewhat as lower tariffs of Chinese imports to the United States will also slightly reduce the trade diversion effects to the European Union. In sum, however, we still expect net exports to bring down growth of Germany’s gross domestic product by around 0.7 percent. All in all, economic output is set to rise by one percent in 2026 overall.
BIP forecast for 2026:
Change in real economic output over the previous year in percent
Sources: Federal Government (February 2026; * Private households and private non-profit institutions serving households), Board of Experts (November 2025); ** including private households and private non-profit institutions,*** including mitarweapon systems, own calculations
Imprint
Federation of German Industries e.V. (BDI)
Breite Straße 29 10178 Berlin
T: +49 30 2028-0 www.bdi.eu
German Lobbyregister Number R000534
Author
Thomas Hüne
T: +49 30 2028-1592 t.huene@bdi.eu
Editorial / Graphics
Dr. Klaus Günter Deutsch
T: +49 30 2028-1591 k.deutsch@bdi.eu
Marta Gancarek
T: +49 30 2028-1588 m.gancarek@bdi.eu
This report is a translation based on „Quartalsbericht Deutschland I / 2026, „Wirtschaft im Jahr 2025 um 0,2 Prozent gewachsen | Industrieproduktion 1,6 Prozent geringer als im Jahr 2024“, as of 12 March 2026
Basic data for national accounts
GDP (price, seasonally and calendar adjusted) Change over previous period in percent
Source: Federal Statistical Office