Germany’s economy has foregone more than $1 trillion in output over the past six years as a series of crises drove prolonged stagnation, according to a study by the German Economic Institute (IW). The research highlights a cumulative loss of €940 billion in price-adjusted GDP from 2020 to 2025, attributing the shortfall primarily to the Covid-19 pandemic, the energy shock following Russia’s invasion of Ukraine, and recent U.S. tariff policies.
The IW modelled a hypothetical growth path based on pre-2019 trends and compared it with Germany’s actual performance. The resulting output gap equates to a loss of over €20,000 in added value per employed person, representing income the nation failed to generate. The study details a sharp escalation in annual losses: €360 billion from 2020–2022, largely due to the pandemic and compounded by the Ukraine conflict’s onset in early 2022. As Germany moved to phase out cheap Russian gas—which previously met 55% of its import needs—losses climbed to €140 billion in 2023 and exceeded €200 billion in 2024, a period marked by back-to-back recessions.
Although 2025 showed a marginal 0.2% growth, the IW still estimated a record annual output loss of €235 billion, worsened by aggressive tariff measures implemented under U.S. President Donald Trump. “The current decade has so far been characterized by extraordinary shocks and enormous economic adjustment burdens, which now significantly exceed the burden levels of previous crises,” said IW researcher Michael Groemling, noting that these events have “paralyzed economic development.”
Meanwhile, Chancellor Friedrich Merz’s government has faced criticism over its response. Merz has described the situation as a “structural crisis,” pointing to factors like Germany’s work ethic, social welfare system, and EU regulations. His administration abolished the constitutional debt brake to fund a major military buildup, committing to make the Bundeswehr Europe’s strongest conventional army and raising defense spending to 3.5% of GDP by 2029. The 2026 budget allocates a record €108.2 billion for defense and €11.5 billion in military aid for Ukraine.
This strategic shift coincides with a sharp decline in public support; Merz’s approval rating has fallen to 25% this month, down from 38% when he took office in May 2025. The IW’s findings underscore a deep and persistent economic challenge, with the accumulated losses from successive global shocks and policy responses continuing to weigh on Germany’s growth trajectory.
