Germany Enters Historic Recession With Three Years Of Economic Decline

Germany’s economy is poised to contract for a third year in a row, marking the nation’s longest economic downturn since World War II. The Handelsblatt Research Institute (HRI) predicts a 0.1% drop in GDP for 2025, following back-to-back declines of 0.3% in the preceding years.

Chief economist Bert Rürup of HRI called the current situation the most severe post-war economic crisis in Germany, blaming inflation, the pandemic, and energy issues for eroding wealth. Surveys show that many Germans are deeply concerned about the economy as a February snap election approaches.

The industrial sector has been particularly hard hit. The Ifo business climate index dropped to its lowest level since May 2020, with many companies in manufacturing and construction reporting job cuts and reduced investment. HRI expects Germany to lose 10,000 jobs per month throughout 2025.

Bankruptcies have surged. Creditreform data revealed that 22,400 companies declared bankruptcy in 2024, a 25% jump compared to the previous year. Consumer bankruptcies also rose significantly, increasing by 8.5% to more than 72,000 cases. Allianz Trade forecasts even higher rates of insolvency in 2025.

Economic Affairs Minister Robert Habeck, the Greens party’s candidate for chancellor, has faced criticism over his handling of the crisis. Analysts question whether his background equips him to manage the EU’s largest economy in the midst of its deepest financial challenge.

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