German economy closes 2025 with significant gains: Bundesbank

"Economic activity thus resumed the upward movement that had begun at the end of 2024," the Bundesbank’s experts wrote. "It was interrupted in the third quarter of 2025 mainly by the negative impact of US trade policy." Growth towards the end of the year was primarily driven by private and government consumption. Industry grew its production and construction output rose significantly.

Experts see the economy continuing to recover in the first quarter of 2026, albeit with weak momentum. "Industry and exports are set to grow in the current quarter," the report stated. Despite some recent negative signals concerning the short-term outlook for production plans and capacity utilisation, the ifo Institute reports that the business situation in the manufacturing sector improved in January, suggesting that industry will continue to recover. A potential reason is that industrial firms’ demand situation is visibly brightening. By contrast, initial available indicators point to private consumption potentially weakening again.

"The labour market remained stuck sideways in the final quarter of 2025," the experts explained. The number of persons in employment fell slightly by 25,000, while the unemployment rate held steady at 6.3 per cent. A look at the leading indicators shows next to no promise of a short-term improvement in the labour market.

Germany’s industrial sector is undergoing structural changes that are simultaneously causing staffing reductions and a shortage of skilled workers. Employment in traditional manufacturing roles is declining, while demand grows for highly skilled or new occupational roles. High retirement rates due to generational change allow firms to downsize without mass layoffs, which helps explain moderate unemployment despite structural challenges and economic weakness.

Wages were up significantly in the fourth quarter of 2025, but rose less sharply in 2025 as a whole than in the previous two years. In 2026, the experts estimate that new wage agreements are likely to be moderate, as the macroeconomic environment is improving only gradually. The 2026 wage round is larger than in the previous year and affects around 11 million employees, according to the report.

Consumer price growth in Germany slowed slightly in late 2025, with services—especially travel—seeing strong increases. Annual average inflation fell from 2.5 per cent in 2024 to 2.3 per cent in 2025. Prices rose at the start of 2026, driven by energy costs and higher service prices, including the Deutschland-Ticket. Inflation is expected to remain around 2 per cent in the coming months.

Fibre2Fashion News Desk (RR)