German Economy Grows for First Year Since 2022 on Spending Boost

8s3ezwt1j885e)6dppgumm47_media_dl_2.png Forsa via Wahlrecht.de

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(Bloomberg) — Germany’s economy grew for the first year since 2022 as a government spending spree helps the country overcome its lengthy industrial slump.

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Gross domestic product rose 0.2% in 2025 following two consecutive annual contractions — matching the median estimate in a Bloomberg survey of analysts. The fourth quarter saw an increase of the same amount.

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Expansion last year was driven by household consumption and government expenditure, while investment fell and trade acted as a drag, the statistics office said Thursday.

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Europe’s largest economy has been rocked in recent years by an energy crisis, access to crucial inputs and President Donald Trump’s jolt to global trade — factors that have hit its industrial heartland particularly hard.

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While there’s optimism that Chancellor Friedrich Merz’s plan to splash hundreds of millions of euros on beefing up the military and upgrading crumbling infrastructure can trigger a revival, questions remain about the sustainability of any turnaround.

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For the coming years, economists reckon those outlays will propel growth beyond 1%. But they stress that reforms to further underpin demand must accompany the splurge.

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Merz is aware of the challenge and has pledged to make reinvigorating growth a top priority. In a letter to lawmakers in his coalition, he described some sectors as being in a “very critical” condition.

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Within days, Volkswagen and BMW reported plunging sales in the US and China as US tariffs and competition from Asian carmakers like BYD took a toll. About 100,000 jobs in Germany’s auto industry are set to disappear by the end of the decade, with labor agency head Andrea Nahles warning prospects for the unemployed are worse than ever.

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Such frustration is feeding support for populist parties and emboldening extremists. Less than a year after the last national elections, the right-wing Alternative for Germany, or AfD, is leading in some polls. 

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At the opposite end of the spectrum, meanwhile, an arson attack this month by radicals in Berlin underscored infrastructure vulnerabilities across the country due to years of underinvestment.

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The resulting blackout left 50,000 households and 2,000 businesses without power for days. Municipalities alone are staring at a record investment backlog exceeding €215 billion ($251 billion), with roads accounting for about a quarter.

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Data of late have signaled that Germany may indeed be experiencing the start of a recovery.

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Factory orders and industrial production both increased strongly in October and November — the latest period for which figures are available. Defense contracts drove the pickup and prompted arms maker Rheinmetall to lift its full-year outlook.

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—With assistance from Kristian Siedenburg, Joel Rinneby, Harumi Ichikura and Craig Stirling.

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