Economy

Germany’s economic stagnation deepened in 2025, with GDP growth reaching just 0.2 percent, a slight rebound after two years of contraction, according to a report released by the Federation of German Industries (DIHK). The findings reveal a growing dissatisfaction among business founders and entrepreneurs, with over half expressing discontent with Germany as a business location.

The DIHK report, based on a survey of over 600 company founders and startup owners, found that 57 percent are dissatisfied or incredibly dissatisfied with Germany as a place to do business. Critically, the percentage of those extremely dissatisfied nearly doubled since 2023, rising from 6 percent to 11 percent. Concerns center on the complexity of the tax system, payment bottlenecks caused by required advance payments, and lengthy administrative processes – including delays of months in receiving a tax identification number.

Helena Melnikov, DIHK’s Managing Director, expressed skepticism regarding optimistic government assessments of the economic situation. “We do not see in the figures any reason for the optimism of the government,” Melnikov told German Business Insider, contrasting the government’s claims of recovery with the DIHK’s findings. While projections indicate a growth of just under one percentage point, experts attribute this largely to calendar effects – a higher number of working days due to holidays falling on weekends.

Between 2019 and 2025, Germany’s cumulative real economic growth totaled only 0.2 percent. In comparison, France grew by 5.1 percent, Italy by 6.1 percent, and the United States by 15 percent over the same period.

The challenging macroeconomic environment is influencing motivations for starting a business. Interest in entrepreneurship remains historically low, with the number of advisory talks at industry and trade chambers increasing by only 0.6 percent compared to the record low of 2023. A growing number of new businesses are being launched as side ventures, with 38 percent of those seeking advice planning to start a business while remaining employed as a form of security.

A record 34 percent of respondents indicated a lack of alternative employment options as their primary motivation for starting a business – the highest figure in a decade. This trend reflects a crisis in traditional industries, driving specialists and managers to self-employment out of fear of unemployment. However, female entrepreneurship is on the rise, with women comprising 47 percent of all individuals seeking advice on starting a business in 2024, a record high.

Investment remains frozen, and labor costs are a growing concern. Only 23 percent of companies plan to increase investment, while 31 percent intend to reduce it. Even when investments are made, they are primarily replacements of worn-out machinery rather than expansions of production capacity. Melnikov warned that the lack of investment could hinder future growth.

The risk landscape for businesses has also shifted. While energy and raw material prices were the primary concern three years ago, labor costs are now the leading threat, cited by 59 percent of entrepreneurs. Despite relatively high energy prices internationally, wage pressures and social security contributions are keeping business leaders awake at night.

The DIHK report and broader economic analyses converge on the need for immediate structural reforms. Entrepreneurs are demanding simplification of regulations, with 74 percent calling for faster and more streamlined processes. You’ll see calls for a “One-Stop Shop” to consolidate administrative procedures. The federal government has proposed a project to establish businesses in 24 hours, but the business community remains skeptical given the slow pace of digitalization in administration.

Melnikov dismissed ideas of cosmetic changes, such as subsidizing social insurance contributions with VAT revenues. “We are already a high-tax country,” she argued, emphasizing the need for deep systemic changes rather than temporary fixes. Experts agree that without drastically reducing bureaucracy, lowering labor costs, and restoring confidence in economic policy, German businesses will continue to decline, and potential founders will increasingly choose secure employment or relocate to more business-friendly jurisdictions.

In January 2026, unemployment in Germany rose to 3.085 million, the highest level in 12 years, increasing by 177,000 compared to December 2025 and 92,000 year-on-year. The unemployment rate reached 6.6 percent. In the fourth quarter of 2025, approximately 46.1 million people were employed in Germany, a decrease of 25,000 from the previous quarter. Germany lost approximately 125,000 jobs in 2025.