Biggest European Economy ‘In Free Fall’
OpenLife Nigeria reports that the biggest economy in Europe, Germany, is currently in free fall.
Germany has the largest economy in Europe.
It is Europe’s largest national economy by nominal GDP, ranking it third globally behind the United States and China. Germany’s economy is highly developed with a strong industrial base alongside a dominant services sector.
On Tuesday, an industry group warned about Germany’s economy that is suffering its “deepest crisis” since the aftermath of World War II, calling on Chancellor Friedrich Merz’s government to take urgent action to spark a revival.
Europe’s biggest economy “is in free fall, but the federal government is not responding decisively enough,” said Peter Leibinger, president of the Federation of German Industries (BDI).
Germany is facing a perfect storm: high energy costs burdening manufacturers, weak demand for its exports in key markets, the emergence of China as an industrial rival and the US tariff onslaught.
It has suffered two years of recession and is forecast to eke out just meagre growth in 2025.
The conservative Merz, who took power in May, has pledged to revive the eurozone’s traditional powerhouse, including through a public spending blitz on defence and infrastructure.
But industry leaders are increasingly voicing frustration that the efforts are moving too slowly and are insufficient to tackle a host of deep-rooted problems, from chronic labour shortages to heavy bureaucratic burdens.
“The economy is experiencing its deepest crisis since the founding of the federal republic, yet the federal government is not responding with sufficient determination,” said Leibinger.
“Germany now needs an economic policy turnaround with clear priorities for competitiveness and growth,” he added, warning that “decisive structural reforms” were urgently needed to arrest the decline.
‘Not a speedboat’
In its latest report released Tuesday, the BDI — an umbrella association for many industry federations — forecast that German factory output will fall two percent in 2025, which would mark its fourth consecutive year of contraction.
Heavy industry, from car-making to producing factory equipment and steel, remains crucial to the German economy. The country is home to more than 100,000 manufacturing firms of varying sizes, employing over eight million people, according to the BDI.
The group’s criticism chimed with concerns expressed elsewhere.
Last week the International Monetary Fund (IMF) said that Merz’s planned spending bonanza alone won’t be enough to guarantee a sustained revival of the economy, and called for the government to enact “pro-growth” reforms as well.
There is some light on the horizon, however. The economy is expected to start picking up speed next year with the government forecasting 1.3 percent growth.
Merz last week defended his government’s actions, pleading for more time to get the economy back on track.
“Germany is not a speedboat, Germany is a large ship,” he told an event hosted by the BDA employers’ association.
“A tanker of this size cannot be turned around in a matter of days, like a speedboat turning 180 degrees in the other direction. It takes time.”
Economic Overview
Germany has a highly developed social market economy.
It is the largest national economy in Europe, the third-largest by nominal GDP in the world, and the sixth-largest by PPP-adjusted GDP.
Due to a volatile currency exchange rate, Germany’s GDP as measured in dollars fluctuates sharply, but it is among the world’s top 4 since 1960.
In 2025, the country accounted for 23.7% of the Euro area economy according to the International Monetary Fund (IMF).
Germany is a founding member of the European Union and the eurozone.
Germany is the third-largest exporter globally with $1.66 trillion worth of goods and services exported in 2024.
In 2024, Germany recorded a trade surplus worth $255 billion, ranking 2nd worldwide.
The service sector contributes around 70% of the total GDP, industry 29.1%, and agriculture 0.9%. Exports accounted for 50.3% of national output.
The top 10 exports of Germany are vehicles, machinery, chemical goods, electronic products, electrical equipment, pharmaceuticals, transport equipment, basic metals, food products, and rubber and plastics.
Germany is the largest manufacturing economy in Europe, contributing around one third of all manufacturing in Europe, which makes it more resilient to global economic crises.
Germany conducts applied research with practical industrial value and sees itself as a bridge between the latest university insights and industry-specific product and process improvements. It generates a great deal of knowledge in its own laboratories.
Among OECD members, Germany has a highly efficient and strong social security system, which comprises roughly 25% of GDP.
Germany is rich in timber, lignite, potash, and salt.
Some minor sources of natural gas are being exploited in the state of Lower Saxony. Until German reunification, the German Democratic Republic mined for uranium in the Ore Mountains Energy in Germany is sourced predominantly by fossil fuels (30%), with wind power in second place, then gas, solar, biomass (wood and biofuels), and hydro.
Germany is the first major industrialised nation to commit to the renewable energy transition called Energiewende.
Renewables produced 46% of electricity consumed in Germany (as of 2019). Germany has been called “the world’s first major renewable energy economy”.
Germany has the world’s second-largest gold reserve, with over 3,000 tonnes of gold.
As of 2023, Germany spends around 3.1% of GDP, third among major economies, on research and development.
It is also the world’s second-largest high-technology exporter and ranks in the top 10 of countries by stock market capitalization.
More than 99 percent of all German companies belong to the German “Mittelstand”, mostly family-owned small and medium-sized enterprises.
These companies represent 48% of the global market leaders in their segments, labelled hidden champions.
Of the world’s 500 largest publicly listed companies measured by revenue, the Fortune Global 500, 29 are headquartered in Germany, as are 26 of Europe’s 100 largest.
Germany is home to many financial centres and economically important cities, such
as Berlin, Hamburg, Munich, Cologne, Frankfurt, and Stuttgart. Four German banks are among the biggest in the world.
Germany is the world’s top location for trade fairs; around two thirds of the world’s leading trade fairs take place in Germany.
Some of the largest international trade fairs and congresses are held in several German cities such as Hanover, Frankfurt, Cologne, Leipzig, and Düsseldorf.
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