Germany’s economy stagnated in the third quarter of 2025, marking a concerning shift after a period of cautious recovery. According to figures released by the Federal Statistical Office (Destatis), the nation’s Gross Domestic Product (GDP) remained unchanged compared to the previous quarter, confirming initial estimates. This lack of growth is attributed primarily to weakening export performance, despite a slight uptick in investment.
While gross investment saw a marginal increase of 0.3 percent, reversing the decline observed in the previous quarter, the uptick was unevenly distributed. Investment in equipment, including machinery, vehicles and IT infrastructure, witnessed a more robust increase of 1.1 percent, signaling some optimism within specific sectors. However, this positive trend was partially offset by a 0.5 percent decline in construction investment.
Consumer spending, a critical driver of economic activity, also proved sluggish, remaining flat. Private consumption experienced its first contraction since the fourth quarter of 2023, declining by 0.3 percent. This downturn was largely due to a reduction in spending on hospitality and leisure services, highlighting shifting consumer priorities and potentially reflecting ongoing inflationary pressures. Government spending, conversely, continued to rise, increasing by 0.8 percent.
The external trade balance offered little in the way of stimulation. Exports of goods and services fell by a notable 0.7 percent, predominantly driven by a substantial 2.6 percent drop in service exports, notably royalties, franchise fees and maintenance services. While goods exports showed a milder decline of just 0.1 percent, the overall weakness in external demand raises questions about Germany’s competitiveness in the global market.
The manufacturing sector, a cornerstone of the German economy, suffered a particularly sharp contraction, experiencing a 0.9 percent decrease in gross value added. While specific areas such as pharmaceuticals and electrical equipment saw increases, the broad-based decline underscores structural challenges facing the industrial base. Construction activity also continued its downward trend.
The lack of robust economic dynamism extends to the labor market. The number of employed individuals in Germany decreased slightly, failing to counteract the challenges in manufacturing and construction. Productivity gains, while present, were modest and insufficient to offset the overall economic stagnation.
Furthermore, a decline in corporate and property incomes, coupled with a rise in wage growth outpacing income growth, has led to a reduction in the savings rate, indicating potentially reduced household resilience.
The data indicates a complex and concerning picture for the German economy. While government spending and investment in specific sectors offer fleeting positives, the persistent weakness in exports and the contraction in consumer confidence and the manufacturing sector present significant headwinds. The stagnation raises questions about the long-term sustainability of Germany’s economic model and the government’s ability to stimulate renewed growth and address structural weaknesses. The situation demands careful monitoring and potentially decisive policy interventions to avert a deeper economic downturn.
