Germany risks economic decline without swift reforms, industry warns

Germany risks long-term economic decline unless structural reforms are implemented swiftly, the head of the country’s main chamber of commerce warned, citing weak growth, falling investment and rising job losses.

“If we don’t address the structural challenges and implement the right reforms, we have little chance of achieving sustainable and strong growth in Germany again,” Peter Adrian, president of the German Chamber of Industry and Commerce (DIHK), told dpa.

“If we continue as we are, if the economy continues to stagnate or economic growth remains so subdued, then we will fall behind internationally.”

Adrian also warned that prolonged weakness in Europe’s biggest economy was reducing the federal government’s fiscal “room for manoeuvre.”

“That’s why we must now unequivocally and consistently send all signals in favour of economic growth,” Adrian said.

Germany’s economy contracted in 2023 and 2024, while growth is forecast to be minimal this year and no meaningful recovery is expected in 2026.

Job losses and weak investment

“In industry alone, we have lost another 170,000 jobs in just one year,” said Adrian. “Capital investment has fallen back to the level of 2015. This means we have lost a decade in terms of investment.”

Investment activity is a key indicator of business confidence and expectations for future growth, he added, and those “expectations for the future are extremely poor.”

According to Adrian, Germany’s investment environment is no longer internationally competitive. He pointed to the basic materials industry, which is struggling with high energy costs, as well as the automotive and supplier sectors.

Mechanical engineering, another core pillar of German industry, is being hit by weak industrial investment, trade policy uncertainty and global disruptions, including the prospect of higher US tariffs.
High labour costs in Germany are placing an additional burden on companies, Adrian said.

Pressure on governing coalition

Commenting on Chancellor Friedrich Merz’s promise to deliver far-reaching reforms to the economy and social welfare system, Adrian said the governing coalition seems to want to drive change but is plagued by internal resistance.

“Often, one of the coalition partners opposes something. For us, it would be desirable for those responsible to pull together now and work on serious reforms. After all, everyone should have a shared interest in getting the economy moving forward again,” said the DIHK president.

He urged the government to bring forward a planned corporate tax cut scheduled for 2028 and to reduce electricity taxes for all users to the European minimum level.