Market Update: We break down the business implications, market impact, and expert insights related to Market Update: Economic Key Facts Germany – Full Analysis.
A noticeable economic upturn in Germany is still a long time coming. The federal government expects only slight economic growth of +1.0% this year. In the fall, gross domestic product was still expected to grow by +1.3%. In 2025, Germany narrowly avoided a third year without economic growth, with mini-growth of +0.2%, and is thus lagging behind other major industrialized nations.
According to the government, one reason for the gloomy expectations is that the recovery in the second half of 2025 was weaker than expected. This made for a more difficult start to the new year. In addition, the billions in government spending approved for infrastructure modernization, climate protection, and strengthening the armed forces are having a slower impact than hoped. Debt-financed special funds are expected to be a key driver of economic growth. According to the government, government investment is likely to contribute around two-thirds of a percentage point to GDP growth in 2026.
The mood among companies in Germany has also remained unchanged. The ifo Business Climate Index remained at 87.6 points in January 2026. While the current situation was assessed somewhat more positively, expectations clouded over slightly.
The public expenditure ratio, which indicates the state’s influence on an economy, is calculated as total government expenditure as a percentage of GDP. According to the EU Commission, this amounted to 50.2% in Germany in 2025, representing a further increase of 0.7 percentage points compared with 2024. This put the public spending ratio slightly above the EU average of 49.6%, but significantly above the public spending ratios of other major economies such as the United Kingdom (46.9%), Japan (41.3%), and the United States (39.6%).
According to the OECD, the share of taxes and social security contributions in total labor costs for average earners in Germany was 47.9% in 2024 for singles without children. This puts Germany in second-worst place among the 38 OECD member states, behind Belgium, and well above the OECD average of 34.9%, which detracts from Germany’s attractiveness as an investment locati . The ratio is also significantly lower in countries outside the EU, such as the United Kingdom (29.4%) and the United States (30.1%).
The current forecasts by German economic research institutes and government organizations for GDP growth in Germany range between +0.6% and +1.5% for the calendar year 2026 and between +1.0% and +1.6% for 2027: