1 Slight growth for German economy at end of the year
The German economy followed a slight upward trend towards the end of 2025. Based on an initial and very early estimate released by the Federal Statistical Office, real GDP recorded a quarter-on-quarter rise of 0.2 % in seasonally adjusted terms 1 in the fourth quarter. 2 Industry is likely to have picked up again. According to the data available so far, exports declined again, partly on account of continued weak exports to the United States. However, despite higher US tariffs and a further deterioration in Germany’s competitive position reported by the ifo Institute, the trend in foreign demand continued to point upwards. In addition, domestic demand showed a steep rise recently. This was probably driven by orders for military equipment in particular. However, the still low capacity utilisation continues to weigh on business investment. By contrast, construction output is benefiting mainly from modernisation projects for public infrastructure and growth in the finishing trades. Furthermore, private consumption and the related services sectors are likely to have provided positive impetus. The steep rise in wages created scope for additional consumer spending. This was reflected in higher real retail sales and motor vehicle registrations. Nevertheless, firms’ expectations recently became somewhat more pessimistic again, suggesting that economic output is likely to grow only moderately in the first quarter of this year. The easing of fiscal policy is likely to provide stronger impetus over the remainder of the year, however. 3
2 Significant rise in industrial output
Industrial output probably rose significantly in the fourth quarter. In November 2025, the latest date for which data are available, it rose again considerably on the month in seasonally adjusted terms. Averaged over October and November, it was significantly above its level in the previous quarter. Manufacturers of capital goods were the main contributors to the strong growth in output. Output rose across all sectors in quarter-on-quarter terms here. However, according to data from the German Association of the Automotive Industry, the number of passenger cars produced fell in December after seasonal adjustment and thus on a quarterly average as well. Price-adjusted industrial sales showed a considerably more subdued development than industrial output. Despite a strong increase in November, they were only slightly above the level of the previous quarter averaged across October and November. This is also likely to reflect the fact that sales lag production.
Demand for industrial products was recently driven by large domestic orders to a significant extent. In November, new orders in German industry were up steeply on the previous month in seasonally adjusted terms owing to an increase in large orders. Averaged over October and November, they were likewise significantly higher than their level in the previous quarter. The Federal Government’s efforts to increase defence spending are likely to have contributed to this, with domestic orders experiencing a particularly sharp rise. In addition, strong growth was largely driven by orders for the manufacture of basic metals and other transport equipment, which also includes military vehicles. 4 Even excluding large orders, there was an increase in orders overall, although domestic orders were significantly weaker without the large orders. At the same time, the upward trend in foreign demand remained unchanged despite the dip in the third quarter. New orders from abroad declined slightly on the month in November. Averaged over October and November, however, they were distinctly higher than in the previous quarter.
3 Construction provided a positive boost to growth
Construction output is likely to have risen in the fourth quarter. In November, it declined slightly on the month after seasonal adjustment. However, taking the average of October and November – the figures for December are not yet available – it was significantly higher than the level of the previous quarter. This growth was attributable to finishing trades and civil engineering. Construction activity is likely to have been largely supported by investment in infrastructure and modernisation. By contrast, the decline in building construction output continued, suggesting that housing construction remained weak. Heterogeneous developments thus continued within the construction sector. According to surveys conducted by the ifo Institute, 46 % of housing construction firms were still reporting a lack of orders in the fourth quarter. In civil engineering, by contrast, it was only 28 % of firms. However, orders in housing construction rose significantly in October, whereas they fell markedly in most other areas. On balance, new orders in October were well below the high level recorded in September, which was still dominated by large-scale public contracts. In addition, business expectations deteriorated in the fourth quarter. A far-reaching recovery in construction, as anticipated in December’s forecast, is therefore likely to be delayed somewhat.
4 Economic output increased slightly in 2025 as a whole
German economic output grew slightly in 2025 as a whole, after having contracted for two consecutive years. According to provisional calculations by the Federal Statistical Office, real GDP rose by 0.2 % on the previous year (and by 0.3 % after calendar adjustment). 5 US tariffs, the appreciation of the euro and high competitive pressure, especially from China, fuelled a contraction in exports. Political uncertainties and weak capacity utilisation in industry also weighed on investment activity. Housing investment remained in decline. By contrast, consumption made a positive contribution to GDP growth. Private consumption was supported by the continued steep rise in wages.
In the manufacturing sector, gross value added fell less sharply than in the previous year, in line with the decline in exports and investment in machinery and equipment which was no longer as steep. The construction sector has not yet been able to start on a recovery path. Demand was higher, but this was not yet enough to boost output markedly. By contrast, significant stimuli for growth came from the services sector, whose value added in most sectors was significantly higher than in the previous year.
5 Situation on labour market unchanged
The labour market, which has been dampened by weak economic growth, remained virtually unchanged at the end of 2025. Continued industrial job losses are being largely offset by growth in the services sector. In November, total employment in Germany remained at the previous month’s level of 45.95 million persons in seasonally adjusted terms. The total number of employees subject to social security contributions also remained stable, with the initial estimate currently referring to the month of October. A significant number of jobs continued to be shed in manufacturing. Employment figures also continued to decline markedly in trade and in the temporary employment sector, which has posted a considerable reduction over the past three years. By contrast, employment in other services sectors increased, mainly in health and social services. However, employment subject to social security contributions is also rising to a smaller extent in logistics, public administration and other, often personal, services. The number of jobs in the construction sector remained stable. The use of short-time work for economic reasons is seeing a slight downward trend.
Leading indicators of employment do not suggest any improvement in the coming months. The ifo employment barometer, a survey of the recruitment plans of trade and industry over the next three months, dropped again in December and reached a new low since the COVID-19 pandemic. Recruitment plans in large parts of trade and industry were recently scaled back again. Furthermore, the IAB labour market barometer, which also encompasses publicly financed sectors, declined somewhat. However, it remains just above the neutral threshold, meaning that a stable level of employment can still be expected in the economy as a whole. The number of vacancies reported to the Federal Employment Agency rose for the second consecutive month, following a decline lasting three years. However, according to the Federal Employment Agency, the increase is based only on reports of certain employers benefiting from large orders. 6 No improvement can be expected in broad terms here either.
Unemployment went up marginally in December. In seasonally adjusted terms, the number of persons officially registered as unemployed went up by 4,000 from November to 2.98 million. The unemployment rate remained unchanged at 6.3 % due to rounding. This slight increase turns into a slight decline when looking at total underemployment. Behind this is a smaller number of persons who are participating in integration or labour market policy measures and only on that basis are not counted as unemployed. However, the prospects of registered unemployment also declining have deteriorated somewhat recently. The IAB unemployment barometer dropped to neutral territory again, which suggests unemployment will remain largely unchanged over the next three months.
6 Slight rise in energy commodity prices recently
Energy commodity prices have risen slightly of late. Following a decline in crude oil prices in December as a result of adequate global supply, they picked up again slightly in January. This was mainly due to supply concerns related to the turmoil in Iran. By contrast, the US military intervention in Venezuela had little impact on the oil price. A barrel of Brent crude oil recently cost US$68, which is around 19 % lower than one year ago. European gas prices also rose markedly again in January owing to higher demand due to weather conditions. As this report went to press, however, at €36 per MWh they were still around one-third below the previous year’s level.
7 Inflation down significantly to 2.0 % in December
Price developments at the upstream stages of the economy were mixed recently. In the case of imports, seasonally adjusted prices for both energy and other goods were up on the month in November. By contrast, industrial producer prices, for which data are already available for December, fell slightly. This was mainly due to lower energy prices, while prices for other goods increased slightly. In year-on-year terms, import prices fell by 1.9 % and industrial producer prices by 2.5 %.
The inflation rate fell substantially in December. The annual headline inflation rate as measured by the Harmonised Index of Consumer Prices (HICP) fell from 2.6 % in November to 2.0 % in December. 7 Core inflation excluding energy and food likewise declined considerably, dropping from 3.0 % to 2.5 %. This decrease is partly due to the discontinuation of an inflationary base effect for non-energy industrial goods in the previous year. In December, the HICP was 0.2 % down on the month in seasonally adjusted terms, following a slight increase in prices in the previous month. This was mainly due to falling goods prices, especially for energy as a result of lower fuel prices. Prices for non-energy industrial goods fell significantly as well. Food prices declined slightly overall, with cheaper dairy products playing a role in particular. By contrast, prices for services rose moderately, although rents continued to experience above average increases in a long-term comparison.
Looking at the year as a whole, the disinflation process continued in 2025, but lost momentum. The annual average inflation rate fell to 2.3 %, from 2.5 % in 2024 and 6.0 % in 2023. In the case of services, inflation slowed only marginally, partly owing to strong wage growth, and remained well above average. For food and non-energy industrial goods, inflation likewise eased somewhat and was close to the respective long-term average, taking into account the past period of high inflation. Energy prices fell again significantly, albeit less sharply than in the previous year.
At the beginning of the year, the inflation rate is unlikely to fall any further and will hover around the 2 % mark. 8 From January 2026 onwards, higher prices for the “Deutschland-Ticket” and the rise in the national carbon price for heating and transport will drive up prices. 9 This is offset by falling electricity prices as a result of lower transmission grid fees and the abolition of the natural gas storage levy. By contrast, the lower VAT on food and beverage service activities which also applies from January 2026 is likely to be passed on to consumers only to a limited extent.
