Europe’s Largest Economy Facing Serious Hurdles

The largest economy in Europe, Germany, is forecast to enter its third year of recession, marking the country’s longest economic downturn since the end of World War II. The Handelsblatt Research Institute (HRI) projects a 0.1% GDP contraction in 2025, following consecutive declines of 0.3% in the past two years.

HRI’s Bert Rürup described the economic situation as unprecedented in Germany’s post-war history. He blamed inflation, energy disruptions, and the pandemic for creating financial hardship and reducing the average German’s wealth.

Bankruptcy filings surged in 2024, according to Creditreform. Corporate bankruptcies rose nearly 25% to 22,400, the highest number since 2015. Consumer insolvencies also increased by 8.5%, exceeding 72,000 cases. Allianz Trade predicts the financial pressures will lead to even more bankruptcies in 2025.

Germany’s industrial base has been hit hard, with the Ifo business climate index reaching its lowest point in over three years. Manufacturing and construction companies have consistently announced layoffs, and HRI estimates a monthly loss of 10,000 jobs this year.

Economic Affairs Minister Robert Habeck, who is running for chancellor in February, has come under scrutiny for his handling of the economic crisis. Critics have questioned whether his qualifications align with the challenges of managing the EU’s largest economy.