Germany: From Economic Powerhouse to G7 Laggard

While long-time German chancellor Angela Merkel is fondly remembered for her calm and reason as she navigated Germany and Europe through several crises, her economic legacy has been tarnished in retrospect, as she failed to bring about reforms needed to keep the country’s economy ahead of the competition. Lacking infrastructure, chronic underinvestment and the country’s infamous red tape have hurt Germany’s competitiveness, turning it from Europe’s economic powerhouse to its problem child.

Between 2013 and 2023, the German economy grew at an average pace of 1.1 percent, far below for example the U.S., which saw average real GDP growth of 5 percent during that period. Even worse, Germany’s economy contracted in 2023 and 2024, making it one of the few advance economies to actually fall into the recession that many had predicted to follow the Covid-19 pandemic and the ensuing inflation crisis. For 2025, the IMF predicts 0.3 percent GDP growth for Germany, which would be a small improvement but not enough to cover up the urgent need for reform and public investment.