Germany Edges Ahead: Economic Growth After Three-Year Stagnation

The German economy grew by 0.2% in 2025, marking its first expansion in three years. Increased consumer spending and government investments fueled this growth, despite declining exports and investment in machinery. A new fiscal plan aims to revive growth, with a special focus on infrastructure and defense.

Germany's economy has shown signs of recovery for the first time in three years, recording a modest growth of 0.2% in 2025, according to the Federal Statistics Office. This comes as a result of increased consumer spending and heightened government expenditure, injecting some momentum into Europe's largest economy.

Chancellor Friedrich Merz has initiated a comprehensive spending initiative to enhance economic prospects, although its full impact is yet to materialize. Despite the positive turn, the growth was overshadowed by falling investments in machinery and a challenging export environment exacerbated by global trade frictions.

Germany's fiscal approach has shifted, with a 500-billion euro special fund for infrastructure and reduced constraints on defense investments marking a significant policy change. As exports decline, the country faces headwinds of higher U.S. tariffs, euro appreciation, and competition from China, necessitating strategic navigation in the coming year.

(With inputs from agencies.)