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Economic and political overview

Economic Overview

Germany is the top economic power in Europe and the fourth globally. Nevertheless, the country was severely affected by the consequences of the Russia-Ukraine conflict as prior to the invasion, Germany was highly dependent on Russian gas, oil and coal, with around one-third of its primary energy supply coming from Russia. After contracting 0.3% in 2023, the country experienced a second year of recession in 2024, when GDP recorded negative growth of 0.2% according to the first estimates by Destatis. Weak domestic and foreign demand for manufacturing goods, coupled with high uncertainty, dampened equipment investment. The construction sector also struggled due to labour shortages and sluggish domestic demand. Low consumer sentiment led to a higher savings rate, limiting private consumption's contribution to economic growth despite a rise in real disposable income. Domestic demand is expected to drive economic growth in 2025 and 2026. However, persistently high energy costs will continue to undermine the cost-competitiveness of energy-intensive industries. Despite recovering demand from key trading partners, net exports are projected to slightly hinder growth in 2025 and remain neutral in 2026. The current account surplus is anticipated to stay high but below pre-pandemic levels. Economic growth is forecast at 0.7% in 2025 and 1.3% in 2026 as per the EU Commission (0.3% and 1.1%, respectively, according to the IMF), although the possible imposition of new tariffs by the U.S. may have a negative impact on exports.

In 2024, Germany's general government deficit fell to 2.2% of GDP from 2.6% in 2023, driven by the phase-out of energy price relief measures. However, defence spending from an extra-budgetary fund increased. The deficit is projected to decline to 2.0% in 2025, supported by stable employment, rising wages, and the end of tax-free household bonuses. Higher healthcare and long-term care contribution rates will also boost revenue, though rising social and defence expenditures will offset much of it. The deficit is forecast to drop further to 1.8% in 2026, with the fiscal stance becoming broadly neutral by 2025 (EU Commission). Government debt stood at 62.7% of GDP at the end of 2023 and remained around the same level throughout 2024 (IMF). This stability was influenced by weak economic growth, easing inflation, and spending that exhausted the debt brake's borrowing limits. Contributing factors also included defence spending from an extra-budgetary fund and debt-financed investments to establish a capital-based pillar in the pension system. The debt level is expected to remain stable over the forecast horizon. Consumer prices in Germany rose by 2.2% in 2024, significantly lower than the rates of 5.9% in 2023, 6.9% in 2022, and 3.1% in 2021. Prior to this period, inflation rarely exceeded 2%, according to Destatis. Energy prices are expected to decrease further in 2025 from high levels in 2024, helping lower overall inflation. By 2026, with stabilising wholesale energy prices and CO2 price adjustments, energy costs will no longer contribute to reducing inflation. Services inflation, the largest contributor, is likely to slow only slightly due to ongoing wage growth. Overall, inflation is projected at 2.1% in 2025 and 1.9% in 2026 (EU Commission).

Unemployment rose with the slowing economy but remains low in absolute terms at 3.4% in 2024, while employment continues to grow. The IMF forecasts the unemployment rate to stay around 3.2% in the medium term, reflecting both cyclical demand weakness and structural changes, such as job losses in the auto industry due to the transition to electric vehicles. This occurs alongside skills shortages and vacancies in other manufacturing sectors. The labour market is expected to improve as economic growth resumes, though the ageing population will continue to affect labour supply. While nominal wage growth has slowed, real compensation increased by 2.3% year-on-year in Q2 2024, with steady growth in real wages expected in 2025. With a GDP per capita (PPP) of USD 57,914, Germany is among the wealthiest countries in the world (IMF, 2025). Nevertheless, according to data by Destatis, around 20.9% of the country's population is at risk of poverty or social exclusion: in 2024, 15.5% of the population was at risk of poverty, 6% was affected by severe material and social deprivation, and 9.8% was living in a household with very low work intensity.

 
Main Indicators 2023 (E)2024 (E)2025 (E)2026 (E)2027 (E)
GDP (billions USD) 4,527.014,710.034,921.565,117.185,267.98
GDP (Constant Prices, Annual % Change) -0.30.00.31.11.1
GDP per Capita (USD) 53,56555,52157,91460,13661,859
General Government Balance (in % of GDP) -2.4-1.4-1.1-0.8-0.8
General Government Gross Debt (in % of GDP) 62.762.762.160.959.9
Inflation Rate (%) 6.02.42.02.02.0
Unemployment Rate (% of the Labour Force) 3.03.43.23.13.0
Current Account (billions USD) 278.73311.72313.44306.12299.68
Current Account (in % of GDP) 6.26.66.46.05.7

Source: IMF – World Economic Outlook Database , October 2021

Country Risk

See the country risk analysis provided by La Coface.

 

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Main Sectors of Industry

The German agricultural sector is rather limited: it contributes a mere 0.8% of GDP and employs 1% of the country’s workforce (World Bank, latest data available). To sustain a population exceeding 200 million farm animals, approximately 50% of the agricultural landscape consists of grasslands and arable land designated for feeding purposes. The primary production areas within the agricultural sector, intended for human consumption, encompass not only animal products but also bread cereals, potatoes, sugar beets, oilseeds, fruits, and vegetables. Additionally, specific areas of grassland and crops are allocated for the production of bioenergy and bioresources. According to the national statistical office Destatis, in Germany there are around 255,010 agricultural holdings, of which the majority are sole proprietorships, meaning that most farmers run their businesses alone or with their families. In recent years, the number of holdings dedicated to organic farming has been growing steadily, reaching 28,630. The total agricultural used area amounts to 16.56 million hectares, with an average size of 65 hectares (Destatis). In 2023, almost 14.2% of the total output value of the EU's agricultural industry came from Germany (EUR 76.2 billion – Eurostat, latest data available).

The industrial sector amounts to about 26.8% of GDP and employs 27% of the country’s workforce. Germany is Europe's most industrialized country, and its economy is well diversified: the automotive industry is the country’s largest sector, but Germany also retains other specialized sectors, including mechanical engineering, electric and electronic equipment, and chemical products. Overall, manufacturing activities alone account for about 19% of GDP. The industrial activity is concentrated mainly in the states of Baden-Württemberg and North Rhine-Westphalia, where there are more than half of the 1,600 German manufacturing companies identified as global market leaders. According to the latest data available from BDI, industrial production was down by 3% in 2024, marking the third consecutive year of decline. Germany's industry has been impacted by rising foreign competition, high energy costs, persistently elevated interest rates, and uncertain economic prospects. Passenger car production in Germany reached 4.1 million units in 2024, roughly matching the 2023 level, according to the German automobile association VDA. However, the association noted that this figure remains 12% below pre-crisis levels in 2019. Moreover, production in energy-intensive industries fell by 2.2% from July to September 2024 compared to the previous three months (data BDI).

Germany’s service sector is the leading employer (72% of the workforce) and contributes to 63.7% of the country’s GDP. The sector’s growth in recent years has been primarily driven by a strong demand for business-related services and by the development of new technologies, which contributed to establishing whole new branches in the tertiary sector. The hotel and food services sector also plays an important role, with a total turnover worth EUR 68 billion between Jan-Nov 2024 (+0.6% y-o-y, Destatis). Germany’s banking system comprises three pillars: private commercial banks, public-sector banks, and cooperative banks. The segment with the largest share of assets in the banking system is comprised of privately owned commercial banks, constituting approximately 40% of the total assets, whereas cooperative banks account for around 12%. The public banking sector includes savings banks (Sparkassen), Landesbanken, and DekaBank, the central asset manager for the Savings Banks Finance Group, which together account for slightly more than a quarter of total banking assets. Currently, there are approximately 360 savings banks (European Banking Federation).
Overall, the German economic model relies heavily on a dense network of small and medium-sized enterprises (SMEs), often very open to the international environment: according to the latest data from Destatis, around 55% of the total employed persons work in SMEs, with the proportion of persons employed in micro-enterprises amounting to 18%, while 20% work in small and 15% in medium-sized enterprises.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 1.2 26.5 72.3
Value Added (in % of GDP) 0.8 26.8 63.7
Value Added (Annual % Change) 0.6 -0.5 0.6

Source: World Bank - Latest available data.

 
Monetary Indicators 20162017201820192020
Euro (EUR) - Average Annual Exchange Rate For 1 USD 0.940.890.850.890.88

Source: World Bank - Latest available data.

 

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Foreign Trade

Germany is an export-oriented economy, with trade representing around 83% of its GDP (World Bank, latest data available), and the country is both the world’s third-largest importer and exporter. Germany is by far the world’s largest exporter of automobiles: motor vehicles and parts made up 17.3% of the country’s exports in 2023 (EUR 273 billion), making them the top export product. Machinery (14.4%) and chemical products (9.0%) followed in second and third place, respectively, among the leading export items (Destatis). In the same year, the main imported categories were electrical machinery and equipment (14.9%), machinery and mechanical appliances (12.1%), vehicles (10.8%), and mineral fuels and oils (9%).

In 2023, Germany’s primary export destination was the U.S. which accounted for 10% of the total, followed by France (7.6%), the Netherlands (7.1%), China (6.2%), and Poland (5.8%). Imports came chiefly from China (11.6%), ahead of the Netherlands (7.6%), the U.S. (7%) Poland and Italy (6% and 5.3%, respectively). Overall, the People's Republic of China remained Germany's most important trading partner for the eighth consecutive year in 2023, with a foreign trade volume of EUR 253.1 billion. However, the trade volume with China was just EUR 0.7 billion higher than that with the United States, which stood at EUR 252.3 billion. Germany remains the key trading partner for EU countries: in 2023, it was the leading destination for merchandise exports from 15 of the 27 other Member States (Destatis).

The country’s trade balance is structurally positive. According to the latest figures from the national statistical office Destatis, in 2023, Germany saw a decrease in both exports and imports: goods exported amounted to EUR 1,575 billion, marking a 1.1% fall, while imports totalled EUR 1,356 billion, reflecting a 9.9% decrease compared to one year earlier. As the drop in imports was much more pronounced than the drop in exports, the export surplus more than doubled from the previous year. The foreign trade balance showed a surplus of EUR 218.5 billion in 2023. In regards to Germany’s vast trade surplus, since 2014 the European Commission has encouraged the country to favour internal demand dynamics instead of exports, in order to mitigate the existing “macroeconomic imbalance” in the EU (as per the Commission rules, EU countries should not have an external trade surplus of more than 6% of their GDP). Germany is generally a net importer of commercial services: in 2023, imports totalled USD 508.2 billion against USD 440.1 billion in imports (WTO). According to preliminary figures from Destatis, in the period Jan-Nov 2024, Germany exported EUR 1,427.8 billion worth of goods, against EUR 1,108 billion in imports (-1.4% and -11.4% year-on-year, respectively).

 
Foreign Trade Values 20192020202120222023
Imports of Goods (million USD) 1,233,9781,171,7821,421,5121,582,5951,462,602
Exports of Goods (million USD) 1,489,4121,382,5331,636,7421,675,8471,688,419
Imports of Services (million USD) 376,540326,196405,468468,260508,225
Exports of Services (million USD) 356,277333,894407,654430,527440,113

Source: World Trade Organisation (WTO) ; Latest available data

Foreign Trade Indicators 20192020202120222023
Foreign Trade (in % of GDP) 79.173.080.289.182.8
Trade Balance (million USD) 238,777203,820222,971142,277249,854
Trade Balance (Including Service) (million USD) 222,713211,436225,272105,645179,880
Imports of Goods and Services (Annual % Change) 3.5-8.19.07.0-0.6
Exports of Goods and Services (Annual % Change) 1.9-9.510.03.1-0.3
Imports of Goods and Services (in % of GDP) 36.733.837.543.339.4
Exports of Goods and Services (in % of GDP) 42.439.242.745.843.4

Source: World Bank ; Latest available data

Foreign Trade Forecasts 20242025 (e)2026 (e)2027 (e)2028 (e)
Volume of exports of goods and services (Annual % change) -0.12.02.93.13.0
Volume of imports of goods and services (Annual % change) -1.12.33.03.33.3

Source: IMF, World Economic Outlook ; Latest available data

Note: (e) Estimated Data

 
International Economic Cooperation
Germany is a member of the following international economic organisations:  ICC, European Union, WTO, European Economic Area, G-6, G-7, G-8, G-10, G-20, IMF, OECD, among others. For the full list of economic and other international organisations in which participates Germany click here. International organisation membership of Germany is also outlined here.
Free Trade Agreements
The complete and up-to-date list of Free Trade Agreements signed by Germany can be consulted here.
 

Main Partner Countries

Main Customers
(% of Exports)		 2023
United States 10.1%
France 7.4%
Netherlands 7.0%
China 6.2%
Poland 5.7%
See More Countries 63.5%
Main Suppliers
(% of Imports)		 2023
China 11.8%
Netherlands 7.2%
United States 6.9%
Poland 5.9%
Italy 5.2%
See More Countries 63.0%

Source: Comtrade, Latest Available Data

 

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Political Outline

Current Political Leaders
President: Frank-Walter Steinmeier (since 19 March 2017) - SPD
Chancellor: Olaf Scholz (since 8 December 2021) - SPD
Next Election Dates
Presidential: February 2027
Federal Parliament (Bundestag): 23 February 2025
Current Political Context
In 2024, Germany’s political landscape was marked by local and European elections as well as governmental changes. In September, the Christian Democratic Union (CDU) achieved the most votes in the Saxony state election, while the far-right Alternative for Germany (AfD) won a plurality in the Thuringian state polls, marking the first time a far-right party achieved such a result in Germany since World War II.
At the federal level, the government encountered instability when Chancellor Olaf Scholz’s coalition collapsed in November 2024, as disagreements with Finance Minister Christian Lindner of the Free Democratic Party (FDP) led to the loss of a motion of confidence on 15 December. Consequently, President Frank-Walter Steinmeier dissolved the Bundestag and called early federal elections for 23 February 2025.
Meanwhile, in the European Parliament elections of June 2024, the CDU/CSU alliance emerged as the largest German party, gaining seats compared to the 2019 ballot. The Greens and Social Democrats (SPD) saw slight losses, while the AfD made notable gains, reflecting the party's growing domestic support.
On the international stage, Germany remained a key player in European support for Ukraine amidst its war with Russia. In 2024, Germany increased its military aid to Ukraine, including defence supplies and additional financial assistance. Domestically, debates intensified over the scale of this support, with opposition parties voicing concerns about its economic impact.
In response to migration pressures, the government reinstated stricter border controls in September 2024, including checks on national land borders with EU members, aiming to curb irregular migration.
Main Political Parties
In Germany, parties require at least 5% of the national vote in order to secure representation in the Bundestag. Although based on a multi-party system, the Christian Democratic Union (CDU) and the Social Democratic Party of Germany (SPD) have historically dominated the political arena. The major parties include:

- Social Democratic Party (SPD): Centre-left, social democrats
- Christian Democratic Union (CDU): Conservative, Christian democratic
- Alternative for Germany (AfD): Far-right
- Bündnis90/die Gruenen: Left, green, social-liberism
- Free Democratic Party (FDP): Liberal, centre-right
- Christian-Social Union (CSU): Conservative, Christian Democratic; considered the ‘sister’ of CDU and based in Bayern
- Left Party (Die-Linke): Left-wing
Executive Power
The Head of Government is the Chancellor, and is elected by absolute majority in the Federal Assembly for a four year term. The Chancellor holds the executive power, which includes implementing the law and managing the everyday business of the country. The Federal Ministers (Council of Ministers) are appointed by the President on the recommendation of the Chancellor.

The Head of State is the President, elected for a five year term by the Federal Convention (which includes the members of the Federal Assembly and an equal number of delegates elected by the provincial legislatures). The role of the President is largely ceremonial.

Legislative Power
The legislative power in Germany is bicameral. The parliament consists of two chambers: the Bundestag (the lower house), currently 736 seats, whose members are elected by universal suffrage combining proportional and direct representation, for a four-year term. The second chamber is the Bundesrat (upper chamber), which has 69 statutory seats, and the members are the delegates of the 16 Länder (regions) of the country. There are no elections for the Bundesrat, and the term of its members is for four years. Its composition is determined by that of the regional governments. The government is directly or indirectly dependent on the support of parliament, which is generally expressed by a vote of confidence. The Chancellor can not dissolve the Parliament directly, but he/she can recommend the dissolution to the President in the event of a vote of no confidence in the Bundestag. Legislative power belongs to both the government and parliament. German citizens enjoy considerable political rights.
 

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