German Economy Faces Unprecedented Challenges With Third Year Of Recession

Germany, the largest economy in the European Union, is bracing for a third consecutive year of recession, according to a report from the Handelsblatt Research Institute (HRI). The country’s economy is projected to shrink by 0.1% in 2025, following contractions of 0.3% in both 2023 and 2024.

HRI’s chief economist Bert Rürup described the situation as the worst economic crisis in Germany since World War II. He cited inflation, the energy crisis, and pandemic aftershocks as factors contributing to the declining economic conditions. “The pandemic, the energy crisis, and inflation have made Germans poorer on average,” Rürup said.

Corporate bankruptcies surged last year, with 22,400 companies becoming insolvent in 2024, nearly 25% more than in 2023, according to Creditreform. Consumer bankruptcies also rose by 8.5%, surpassing 72,000 cases. Allianz Trade anticipates even more bankruptcies in 2025 as businesses continue to struggle.

The Ifo business climate index, which measures industry morale, fell in December to its lowest point since May 2020. Reports indicate that layoffs have increased across manufacturing and construction, with employers announcing job cuts almost weekly. HRI predicts a monthly job loss of 10,000 in 2025.

Economic Affairs Minister Robert Habeck, a member of the Greens party and a candidate in February’s snap election, has faced criticism over his management of the economic crisis. Some have pointed to his background in philosophy, rather than economics, as a liability during the country’s most significant downturn in decades.

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