Germany’s economic decline has become a pressing concern, with the country’s GDP stagnating for years due to falling private investment and rising state spending. According to a recent study by the Munich-based ifo Institute, one of Europe’s leading economic think tanks, Germany’s economic output has been flatlining since 2018. The study reveals that government spending on pensions, schools, and infrastructure has increased by 25% since 2015, while corporate investment in machinery and factories has fallen below 2015 levels.

Clemens Fuest, president of the ifo Institute, warns that the economic situation in Germany is becoming “dramatic.” He attributes the decline to less private investment, which translates to less growth, less tax revenue, and ultimately, less money for government services. Fuest notes that the downturn is already affecting millions of ordinary Germans, who are experiencing a decline in their standard of living. He cautions that without swift reform, the country faces a 25-year economic downturn.

To address the crisis, Fuest urges the government to develop a comprehensive reform plan within six months, including pension reforms. He also advocates for reducing regulatory barriers for small and medium-sized companies by eliminating unnecessary documentation rules on CO2 emissions, supply chains, and minimum wages. According to Fuest, this could generate up to €146 billion in added economic gains each year.

Germany’s economy contracted in 2024, following a 0.3% decline in 2023, marking the first back-to-back annual drop since the early 2000s. Rising energy costs, particularly due to the loss of access to cheap Russian gas following Ukraine-related sanctions, have been blamed for much of the downturn. Chancellor Friedrich Merz has acknowledged that the economy is in a “structural crisis,” with large sectors no longer truly competitive.

The ifo Institute and the International Monetary Fund project near-zero growth for Germany this year, with overall economic activity stagnating. The country’s economic decline has significant implications, and the government’s response will be crucial in determining the country’s economic trajectory. With the need for reform becoming increasingly urgent, the German government must take swift and decisive action to address the crisis and restore economic growth.