Economic Key Facts Germany

With a gross domestic product of EUR 4,305 billion in 2024, 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. In the future, however, India is expected to pull ahead of Japan and Germany. Exports of cars and car parts and chemical products in particular have made Germany the third largest export nation in the world to date. At 70%, the service sector accounts for the largest share of the country's gross domestic product (GDP).

The German economy contracted more sharply in the second quarter of 2025 than originally forecast. According to the Federal Statistical Office, gross domestic product (GDP) fell by -0.3% compared to the previous quarter, thereby correcting an initial estimate. This had previously only shown a small decline of -0.1% for the period from April 2025 to June 2025 inclusive.

The correction was justified by the fact that industrial production actually developed worse than previously assumed. While both private and public consumption increased, investment in buildings, machinery and vehicles fell significantly. Foreign trade also failed to provide any positive impetus. The USA's erratic trade policy is slowing down export-oriented German industry. In the first three months of 2025, growth of +0.3% was still sufficient - because business was brought forward out of fear of US President Donald Trump's tariff threats at the time. Since August 7, 2025, most imports from the European Union to the USA have been subject to tariffs of 15%. As the United States is a very important market for German goods, this is not without consequences: Many companies suffered sales losses in the second quarter, particularly in business with the USA, but also with China.

Economists assume that the billions spent by the government on defense and infrastructure will boost the economy. However, this will probably not be reflected in the figures until 2026. However, the higher US tariffs are making business in the important US market more difficult - for car manufacturers and mechanical engineering, for example. This is slowing down growth in Europe's largest economy. Several economic research institutes have therefore lowered their economic forecasts for the current year.

By contrast, the mood among companies in Germany has continued to improve slightly. The ifo Business Climate Index rose to 89.0 points in August 2025, up from 88.6 points in July 2025, meaning that the most important German economic barometer rose for the sixth month in a row and reached its highest level since April 2024.

The government spending ratio, which indicates the government's influence on an economy, is calculated as total government spending as a percentage of GDP. According to the International Monetary Fund (IMF), this amounted to 49.5% in Germany in 2024 and was therefore above the G7 average of 46.1% and the government spending ratio of other major economies such as the UK (44.0%), the USA (37.6%) and China (32.9%).

According to the OECD, the share of tax and social security contributions in total labor costs for average earners in Germany in 2024 was 47.9% 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 weighs on Germany's attractiveness as an investment location. The rate is also significantly lower in countries outside the EU, such as the UK (29.4%) or the USA (30.1%).

Our Business Destination Germany 2024 study provides an assessment of Germany as a business location by international investors. 350 CFOs of the largest German subsidiaries of international corporations from the most important investor countries were surveyed as part of the study to find out how they rate Germany as a business location. As this is the fourth time the study has been published every two years, it also enables trend statements to be made.

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

Our CEO Outlook 2024/25, for which 1,325 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, provides an assessment of German companies' own future viability in the face of new opportunities and complex tasks, their investment plans and their assessment of trends in the coming years.

The current forecasts of German economic research institutes and government organizations on the development of GDP in Germany recently fluctuate between -0.2% and +0.4% for the calendar year 2025 and +0.7% and +1.7% for the calendar year 2026:

In July 2025, German exports fell by -0.6% and imports by -0.1% compared to June 2025, adjusted for calendar and seasonal effects. Compared to July 2024, however, exports rose by +1.4% and imports by +4.3%.

Adjusted for calendar and seasonal effects, goods worth €130.2 billion were exported from Germany and goods worth €115.4 billion were imported into Germany in July 2025. The foreign trade balance therefore once again closed with a surplus of 14.7 billion euros in July 2025 (June 2025: +15.4 billion euros).

Although most German exports in July 2025 went to the United States, at €11.1 billion calendar and seasonally adjusted -7.9% fewer goods were exported there than in June 2025. This is the fourth monthly decline in a row and the lowest value since December 2021 (€11.0 billion). Compared to July 2024, exports to the United States even fell by -14.1% on a calendar and seasonally adjusted basis. Exports to the People's Republic of China also fell by -7.3% to EUR 6.4 billion compared to June 2025.

Real (price-adjusted) incoming orders in the manufacturing sector fell by -2.9% in July 2025 compared to June 2025, adjusted for seasonal and calendar effects. In a less volatile three-month comparison, new orders from May 2025 to July 2025 were +0.2% higher than in the previous three months.

Life in Germany became more expensive again in August. Consumer prices were +2.2% higher than in the same month last year. The inflation rate excluding food and energy, also known as core inflation, remained unchanged at +2.7%.

In August, people in Germany had to pay +2.5% more for food than a year earlier. Coffee and chocolate became up to a quarter more expensive in some cases compared to the same month last year. Fruit prices also rose. Services also increased in price by +3.1%. One reason for this was higher wages. Energy, on the other hand, was -2.4% cheaper than a year earlier.

Current forecasts by German economic research institutes and government organizations on the development of the inflation rate in Germany indicate that the rate will remain at around the current level. For the calendar year 2025, the projections vary between +2.0% and +2.4%:

The number of unemployed people in Germany rose by 46,000 to 3.025 million in August 2025 compared to the previous month of July. That is 153,000 more than in August 2024. The last time there were more than three million unemployed was in February 2015.

Compared to July, the unemployment rate rose by +0.1 percentage points to 6.4%. In July, there were still 2,979 million people out of work nationwide.

The Federal Employment Agency cites the summer break in many companies and the weak economy as reasons for the increase. Global economic uncertainties and the Russian war of aggression against Ukraine continue to have an impact on the German labor market.

According to a study by the Leibniz Centre for European Economic Research (ZEW) and the credit agency Creditreform, the number of new companies founded in Germany has fallen to an all-time low. Last year, 160,852 companies were founded, -0.2% fewer than in 2023. The number has never been this low in statistics going back 30 years.

According to the data, there were around 240,000 start-ups in 1995. At the beginning of the last decade, things went downhill significantly, then the figure remained at around 170,000 for years. Since 2022, however, it has been going down again.

The authors of the study attribute the negative trend to the weak economic situation, sluggish consumer spending and high costs. They also point to the consequences of the Russian war of aggression in Ukraine - energy became more expensive and global political upheaval led to uncertainty. However, structural problems in Germany also put a damper on start-up activity. The infrastructure is rated as dilapidated in some cases and the digitalization of public authorities as inadequate.