Why Germany’s Economy, Once a Leader in Europe, Is Now in Crisis

The country is facing a second year of zero growth, with industry leaders gloomy and worried about potential tariffs from President-elect Donald Trump.

As Germans prepare for a snap election after the collapse of a fragile government coalition, one issue at the top of voters’ minds will be how the new government would revive the country’s once powerful economy at a time when energy prices are high and companies are cutting jobs.

Germany, Europe’s largest economy, has not seen significant growth in the past two years. On Friday, the economy recorded 0.1 percent growth from July to September, but it is forecast to contract over the entire year. And economists do not expect to see a return to growth in 2025, unless a new government can make significant changes quickly.

Driving that point home, Germany’s largest auto supplier, Bosch, said on Friday that it planned to cut 5,500 jobs, beginning in 2027. More than two-thirds will be at German factories.

High energy prices, a complex bureaucracy, aging public infrastructure and geopolitical developments have hurt Germany’s export industry. Political paralysis under the previous government exacerbated the situation.

The three-party coalition led by Chancellor Olaf Scholz spent the last year bickering over issues from energy to immigration before finally collapsing this month. Early elections on Feb. 23 are likely to result in a new government, which will have the opportunity to turn things around.

But economists warn that this will require changes to tax and welfare policies, as well as deregulation and investment in infrastructure. “Without major policy changes, the German economy’s long-run growth potential is extremely limited,” said Salomon Fiedler, an economist at Berenberg, a private bank.