Economic Key Facts Germany

With an expected gross domestic product of USD 5,014 billion in 2025, Germany is the third-largest economy in the world after the United States and China and just ahead of Japan, making it the largest economy in Europe. However, India is expected to overtake Japan and Germany in the future. Exports of motor vehicles and motor vehicle parts, as well as chemical products, in particular, have made Germany the world's third-largest export nation to date. At 70%, the service sector contributes the largest share to the country's gross domestic product (GDP).

Data retrieved: 9 January 2026

Three consecutive years of crisis, poor sentiment among many companies, more corporate insolvencies: the German economy is in rough waters. The sobering balance sheet for the past three years: just two quarters of growth. Even the policies of the new black-red coalition have not yet brought about a change in sentiment.

However, things are expected to pick up in 2026, albeit only cautiously. Depending on the forecast, growth of between +0.6% and +1.5% is expected. Growth in 2026 is likely to be driven mainly by special factors: billions in government spending on infrastructure such as roads and railways, as well as on defense. In addition, more public holidays will fall on weekends, meaning that there will be more working days in 2026 than in the previous year.

However, according to associations and economists, a real upturn in Germany is not to be expected without far-reaching reforms. High energy costs, rising social security contributions, lengthy planning and approval procedures, and excessive bureaucracy continue to weigh on the German economy.

The mood among companies in Germany has also deteriorated again. The ifo Business Climate Index fell to 87.6 points in December 2025, down from 88.0 points in November 2025. This was due to poorer expectations for the coming months.

The public expenditure ratio, which indicates the state's influence on an economy, is calculated as total government expenditure as a percentage of GDP. According to the EU Commission, this amounted to 50.2% in Germany in 2025, slightly above the EU average of 49.6% and the public spending ratio of other major economies such as the United Kingdom (46.9%), the USA (39.6%) and Japan (41.3%).

According to the OECD, the share of taxes and social security contributions in total labor costs for average earners in Germany was 47.9% in 2024 for singles without children. This puts Germany in second-worst place among the 38 OECD member states after Belgium and well above the OECD average of 34.9%, which detracts from Germany's attractiveness as an investment location. The rate is also significantly lower in countries outside the EU, such as the United Kingdom (29.4%) and the United States (30.1%).

The current forecasts by German economic research institutes and government organizations for GDP growth in Germany range between +0.6% and +1.5% for the calendar year 2026 and between +1.0% and +1.6% for 2027:

German exports suffered a setback in November 2025. They fell by 2.5% compared to the previous month of October 2025 to €128.1 billion. Compared to November 2024, exports recorded a decline of 0.8%.

Conversely, goods worth €115.1 billion were imported – an increase of +0.8% compared to the previous month of October 2025. The foreign trade balance thus closed with a surplus of +€13.0 billion.

Most German exports in November 2025 were once again destined for the US. Goods worth €10.8 billion were delivered there, but this was 4.2% less than in October 2025. Compared with November 2024, Germany's exports to the world's largest economy were even 22.9% lower. This development is likely to be due to the newly introduced US import tariffs. Exports to the People's Republic of China, on the other hand, rose by 3.4% to €6.5 billion in November 2025 compared with October 2025.

Real (price-adjusted) order intake in the manufacturing sector rose by +5.6% in November 2025 compared to October 2025, adjusted for seasonal and calendar effects. Excluding large orders, order intake was +0.7% higher than in the previous month. In the less volatile three-month comparison, incoming orders from September 2025 to November 2025 were +4.0% higher than in the previous three months.

A similar picture emerges in industrial production: real (price-adjusted) production in the manufacturing sector rose by +0.8% in November 2025 compared with October 2025, adjusted for seasonal and calendar effects. In the less volatile three-month comparison, production from September 2025 to November 2025 was +0.7% higher than in the previous three months.

The inflation rate in Germany fell surprisingly sharply in December. Goods and services rose in price by +1.8% compared with the same month last year. In October and November 2025, inflation was +2.3% in each month, after peaking at +2.4% in September 2025.

In December 2025, services became noticeably more expensive, rising by 3.5%. This is due to increased wages, which companies are passing on to customers. The increase in the minimum wage on January 1, 2026, is also expected to have a price-increasing effect. Food prices in December were 0.8% higher than in the same month of the previous year. This figure is well below the general inflation rate. Nevertheless, people are noticing in their daily shopping that food prices are significantly higher overall than they were a few years ago. There has been some relief in energy prices: according to statistics, gasoline, electricity, and gas were 1.3% cheaper in December 2025 than a year earlier. However, Germany still has comparatively high energy prices by international standards.

Core inflation, which is particularly closely watched by economists and excludes volatile food and energy prices, fell from +2.7% in November 2025 to +2.4% in December 2025.

For 2025 as a whole, the cost of living rose by an average of +2.2%, similar to 2024. For the new year 2026, economic research institutes are forecasting a slight decline to +1.8% to +2.2%. Consumers will be relieved by, among other things, the elimination of the gas surcharge and lower grid fees.

The number of unemployed people in Germany rose by 23,000 to 2.908 million in December 2025 compared to November 2025. That is 101,000 more than in December 2024. The unemployment rate rose by +0.1 points to 6.2% compared to November 2025 and by +0.2 points compared to the same month last year, November 2024.

⁠The labor market continues to lack economic momentum. Throughout 2025, the labor market in Germany has deteriorated significantly. On average, 2.948 million people were registered as unemployed during the year, 161,000 more than in 2024. According to statistics from the Federal Employment Agency, this is the highest annual figure since 2013. The average unemployment rate rose by 0.3 percentage points to 6.3%.

Renewable energies account for an increasing share of the electricity mix in Germany. In the third quarter of 2025, they accounted for 64.1% of domestic electricity generation. A total of 98.3 billion kilowatt hours of electricity were generated in Germany and fed into the grid in the summer. That was two percent more than in the same period of the previous year.

Among renewables, the share of electricity from wind power increased particularly strongly, rising by +10.5% in the third quarter compared with the previous year. Wind power thus remained the most important energy source, accounting for 26.8% of the total. Electricity generation from photovoltaics—i.e., solar energy—increased by +3.2% and accounted for a share of 24.1%. Maximum values were recorded in both areas due to expansion.

The KPMG Global Navigator offers insights into global growth prospects, opportunities, and challenges.

Our CEO Outlook 2025, for which 1,350 CEOs of large companies around the world were surveyed, including 125 CEOs in Germany, also provides assessments of the economic situation, generative AI, ESG, and other current topics.

Our Future Readiness Monitor 2025, for which 570 top decision-makers in the German economy were surveyed, also provides an assessment of German companies' own future viability in light of new opportunities and complex tasks, their investment plans, and their assessment of trends in the coming years.