ReLive Short Cut²: Deep crisis or pity party?  – an attempt at a realistic assessment of the German economy as we enter 2026

Hardly a day has passed in the past year without warnings of decline and downward spirals in Germany – and therefore calls to reduce bureaucracy, cap social transfers, slow down pension growth or abolish public holidays. But how are these issues related to weak exports or industrial output? Can the proposed measures help in the face of trade disputes with big players or address the car industry’s challenges?

Danish economist Erik Fossing Nielsen recently countered the pessimism with a much more nuanced analysis. So are Germany’s doom-sayers exaggerating? Where do Germany’s problems really lie and what are the best measures to address them?

We discussed this in our next New Economy Short Cut². In cooperation with the OECD Berlin Centre:

Deep crisis or pity party?  –
an attempt at a realistic assessment of the German economy as we enter 2026

With Erik Fossing Nielsen, Independent Economics,  

Sebastian Dullien, IMK Düsseldorf,  

and Nicola Brandt, OECD Berlin.  

On Friday, 12 December 2025, at 1 p.m. – via Zoom. Find the ReLive here.

Erik F. Nielsen started by outlining why he believes Germany is in a better position than many may realise. Above all, he emphasised that over the past three to four years, Germany had experienced a series of macroeconomic shocks. These include a significant terms-of-trade shock, the ECB engineering the fastest and most severe tightening of monetary conditions on record, and a massive increase in uncertainty following Russia’s invasion of Ukraine. However, he noted that these shocks have now either eased or even reversed. He therefore considered the OECD’s prediction of 1 per cent growth to be overly pessimistic, arguing for a more favourable growth rate of around 1.5 per cent GDP in 2026. 

“When you look at these macroeconomic shocks, I would characterise the German flat growth over the last few years as a sign of resilience, not weakness.”
–Erik F. Nielsen

Nicola Brandt responded by recognising Germany’s potential for growth and recovery, adding that a 1 per cent growth rate in 2026 might be overly pessimistic. However, she argued that it remained unclear whether the domestic reforms needed for recovery would be implemented. One important determinant of the country’s future course would be the extent to which the German “Sondervermögen” is used to increase public investment and accelerate private investment. She also stated that the uncertainty surrounding Germany’s exports was likely to persist until 2026. This was not only due to short-term macroeconomic shocks, but also ongoing shifts in global trade relations. For example, China would be catching up with global competitors across various sectors, rendering its economy less dependent on imports. 

Sebastian Dullien offered a long-term perspective to the debate, stating that German GDP per capita growth had been comparable to that of the U.S. between 2000 and 2019. He argued that one reason for why Germany fell behind afterwards was the shifting geopolitical and geoeconomic environment, with China and the U.S. competing with each other and introducing more restrictive industrial trade policies. As a result, Germany’s most important export markets have been partially closed off, resulting in a significant drop in German exports in 2024. 

Nevertheless, he remained optimistic, predicting that the current German fiscal stance would significantly boost GDP in the coming years. He also added that the current German savings ratio may be higher than anticipated, indicating there could be room for an increase in private consumption. Taken together, these factors could result in a domestically driven recovery. However, he warned that current debates on cutting pensions and other social security payments could undermine a potential recovery by creating uncertainty among consumers.