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German economy returns to growth, so why is the country still worried?
Germany’s economy has returned to modest growth, prompting Chancellor Friedrich Merz to welcome signs of recovery. But business leaders and economists say the improvement does not resolve deeper problems: weak productivity, political delays over reform and mounting pressure on public finances could erode prosperity over time.
The Council of Economic Experts forecasts growth of 1.3% in 2026 and 1% in 2027, supported by stronger-than-expected exports and government spending after an energy price shock linked to the war in Iran. Mechanical engineering production has fallen about 20% since 2018, while the sector is cutting 15,000 jobs a month. Ageing-related social costs, defence and debt interest are expected to take up 80% of federal spending; the 2027 budget plans more than €555 billion in expenditure and over €118 billion in new borrowing.
In short
- Germany is growing again, but only modestly.
- Economists warn public finances face long-term pressure.
- Industry leaders say production and jobs are falling.
Steelman: both sides, in good faith
The strongest fair case each way — we don't pick a winner.
The case for
The return to growth and stronger-than-expected exports suggest Germany’s economy can recover, while government spending may support demand after a severe energy shock. Higher public outlays can also be defended as a way to address defence needs and social obligations while reforms take effect, rather than risking a weaker recovery through abrupt restraint.
The case against
Modest growth may mask persistent weaknesses: falling mechanical engineering output, job cuts and weak productivity could undermine Germany’s industrial base and future prosperity. With ageing-related costs, defence and debt interest absorbing much of the budget, continued borrowing may leave less room to respond to future pressures unless delayed reforms improve the economy’s capacity to grow.