Made in Germany in permanent stagnation

Anyone who was happy about the improvement in leading indicators in the summer may have been surprised by the growth figures for the third quarter at the end of October: The German economy once again came away empty-handed – and thus still as large as at the end of 2019. The permanent stagnation continues, burdened by weak exports and private consumption.

No wonder, given the trade policy challenges of recent months. For industry, the strong euro, but above all President Trump's tariff policy, remains a burden. In recent years, around 10% of all German exports went to the USA. Already in the second quarter of 2025, this share fell below 10%, and the data for the third quarter suggest that the decline will continue. And China is no longer the grateful buyer it once was.

From economic heavyweight to onlooker

While fewer German products are exported to China, the share of Chinese imports to Germany is increasing. Anyone who thinks of vehicles, furniture and machines as "Made in Germany" should take a closer look in the future – because China is now a serious competitor in these products.

In addition, China has rare earths – essential for semiconductors and thus indispensable for the automotive industry. German companies are suffering not only from their own trade tensions with the US, but also from those between the US and China, where export restrictions on rare earths are used as leverage. Although both countries have agreed on a "100-day peace", such agreements are fragile. Germany remains an onlooker – the industry has lost its role as a pacesetter and is exposed to greater risks.

The weakness of the german industry is also weighing on the labor market. In no other sector has employment fallen as sharply as in industry, and there is hardly any improvement in sight. The employment outlook in October was at its lowest level since summer 2020. Although demographic change is mitigating the effect, the stagnation is leaving its mark. Labor market uncertainty and low macroeconomic expectations are keeping the propensity to save high, while the buying mood remains subdued.

If you don't sow in spring, you won't harvest in autumn

In addition, political uncertainty has increased over the summer – disagreements in the government, which are becoming increasingly visible to the outside world, and discussions about austerity measures are weighing on the willingness to invest. The optimism, supported by the infrastructure package and defence spending, has given way to impatience: the economic boost has so far been a long time coming. In addition, already planned investments in the special fund were postponed. In other words, when the boost comes, it will be a little less strong than initially hoped.

Nevertheless, the German government's investment package will bring a cyclical upswing as soon as the 500 billion euros find their way into the economy. However, it will probably take a little longer than expected a few months ago – in the coming year, the first effects are likely to be felt economically, and then really take hold in 2027. However, real, sustainable economic growth and greater competitiveness also require real, sustainable reforms – and these are still a long way off.

The ECB is making itself comfortable

The ECB sees itself "in a good place": inflation in the eurozone is close to the target value, growth is reasonably robust. Therefore, the deposit rate of 2% is likely to remain for the time being.

However, if the positive effect of the investment package is further delayed, the euro continues to strengthen and imported inflation falls as a result, or if political turbulence in France and on the financial markets increases, the ECB could be forced to act again.

Even if it is getting colder outside, the storm of risks is still too great for economic cosiness. Withdrawing would be the simple solution, but the continuing stagnation of the German economy shows where this strategy is leading. Waiting is no longer an option. What it takes to go from being an onlooker to an economic player again is the courage to reform and a future-oriented strategy.