Germany is facing the specter of a terribly worrying economic downward spiral that appears to be deepening continuously.
The president of the Ifo Institute, Clemens Fuest, sounds the alarm for a “dramatic” deterioration of economic dynamics, which threatens to undermine the future prosperity of the country.
The study shows that from 2015 until today, state consumption has increased by more than 25%, while business investments have been reduced to the levels they were at a decade ago.
This gap records a structural change that, according to Fuest, deprives the economy of the fuel for growth.
Weakening of the market and stagnation in the standard of living
The decline in investments leads to lower growth rates, reduced productivity, and smaller tax revenues. Consequently, the state’s ability to finance public services and social benefits is limited.
“Germany has been in economic retreat for years. The situation has become dramatic,” warns Fuest.
He emphasizes that the stagnation of the standard of living, combined with the widening of social inequalities, threatens deeper social tensions.
A large portion of citizens feel they are losing ground, while others prosper, creating a dangerous social divide.
Fuest also spoke of the danger of “Italian conditions” emerging in Germany, referring to the chronic pathologies of Italy: low productivity, inflated bureaucracy, and prolonged stagnation.
State Expenditures % GDP
Pressure on the government for deep reforms to free 146 billion euros annually
The Ifo Institute calls on the Federal Government to immediately draft a broad reform package that clearly exceeds the boundaries of the current governmental agreement.
Fuest’s proposal includes a timeline for the final submission of the plan by the spring of 2026.
Key proposals:
1) Termination of the “Mütterrente” (maternity pension) to avoid a further increase in the cost of the insurance system.
2) Extensive reforms in bureaucracy and simplification of business obligations.
3) Reduction of multiple documentation requirements for CO₂ emissions, supply chain traceability, and compliance with the minimum wage.
The institute estimates that the elimination of these bureaucratic burdens could free up to 146 billion euros annually in additional economic activity.
The automotive industry is bleeding - 200,000 jobs lost
At the same time, about 200,000 jobs are at risk of being lost in the German automotive industry, against the backdrop of weak financial results from major manufacturers such as Mercedes-Benz and Volkswagen, reports the newspaper Bild.
The main cause of this negative development, according to automotive industry expert Ferdinand Dudenhoffer, is the large severance payments to departing employees, which burden the companies’ finances.
Although the base units of Volkswagen and its subsidiary Škoda show stability, the general economic situation makes production in Germany unprofitable.
Competitors such as China and EU countries like Hungary attract companies with lower labor and energy costs, while even in the USA, the hourly wage is lower.
Dudenhoffer warns that if immediate measures are not taken, Germany may lose around 200,000 jobs in the automotive and engineering sectors over the next 10 years.
Meanwhile, Stefan Bratzel, an expert at the Center of Automotive Management in Bergish-Gladbach, emphasized that U.S. tariffs make German exports unprofitable, while the high production costs in Germany hinder the competitiveness of the country’s cars in the global market.
On October 30, Volkswagen announced a net loss of 1.072 billion euros for the third quarter of 2025, while its profit for 2025 decreased by more than 60% compared to last year.
Porsche, a producer of luxury sports cars, saw its profit fall by 95.9% during the same period.
This situation warns of serious consequences for employment and the competitiveness of the German automotive industry, which is facing a critical economic challenge.
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