Germany, once the powerhouse of Europe, is now facing a serious economic crisis. The old business model, which relied on cheap Russian natural gas and strong exports to China, is no longer sustainable. As a result, the country has been stuck in economic stagnation for the past five years, with businesses struggling to adapt to changing global conditions.
With a national election set for 23 February—seven months ahead of schedule—the incoming government will face an urgent challenge: developing a new growth strategy to revitalise Europe’s largest economy.
The decline of an industrial powerhouse
Germany’s economy has suffered from a combination of internal and external factors. Excessive bureaucracy, a shortage of skilled workers, slow technological progress, and unclear policies from the outgoing government have contributed to the economic slump. On the global stage, rising competition from China and high energy prices, driven by Russia’s war in Ukraine, have further exacerbated the crisis.
According to Klaus Geissdoerfer, CEO of industrial fan manufacturer EBM-Papst, Germany needs a business-friendly political environment.
“We have bright talent in Germany. We have good companies, but at the moment, we don’t have the awareness at the political level,” he said.
EBM-Papst, which generates €2.5 billion in annual revenue, has suffered particularly in Germany. The company reported a 4.1% decline in revenue in its home market last year, largely due to confusion surrounding government policies.
One example is the Building Energy Act, which was intended to push property owners towards greener heating systems. However, unclear regulations led many homeowners to delay upgrades or rush to buy gas furnaces before the law took effect. As a result, demand for energy-efficient heat pump fans—produced by companies like EBM-Papst—plummeted by nearly 19%.
Growing business frustrations as election approaches
Germany’s business community has been vocal in its criticisms of the country’s excessive bureaucracy. Many companies argue that the government’s climate policies, while well-intentioned, have created unnecessary paperwork that stifles innovation and growth.
Geissdoerfer explained that under a 2023 law, companies must document their efforts to reduce energy consumption. This means that instead of implementing energy-saving measures, employees are spending valuable time writing reports.
“I really hope the new government can solve this, because at the moment, it’s too much,” he said.
Despite the challenges, EBM-Papst is moving in a direction that economists believe could help revive Germany’s economy: investing in green and digital technology. The company is now focusing on providing energy-efficient cooling systems for artificial intelligence data centres and developing AI-driven solutions to optimise energy use.
At the same time, EBM-Papst has been shifting investments away from Germany, increasing its presence in Asia and the United States. This strategy helps the company avoid potential trade barriers, such as import tariffs imposed by former US President Donald Trump.
Germany’s economic bind: Dependence on China and Russia
Germany’s reliance on Russian energy and Chinese exports has left its economy vulnerable. After Germany supported Ukraine in the war against Russia, Moscow significantly reduced its natural gas exports to the country. As a result, electricity prices have soared, making it far more expensive for manufacturers to operate in Germany than in the US or China.
Ulrich Flatken, CEO of metalworking firm Mecanindus-Vogelsang Group, highlighted how rising energy costs are harming industrial competitiveness.
“We pay twice as much for electricity in our German plants as we do in the US. That’s an additional cost of €100,000—a massive disadvantage,” he said.
Meanwhile, China, once a key market for German machinery and automobiles, has become a fierce competitor. Chinese firms, backed by government subsidies, are now producing many of the same products that German manufacturers used to dominate. This shift has significantly reduced German exports.
Between 2019 and 2024, Germany’s economy grew by just 0.3%, while the US expanded by 11.4% and China by 25.8%, according to the German Federal Statistical Office.
The danger of complacency
Economists warn that Germany’s economic struggles are partly due to complacency. Marcel Fratzscher, president of the German Institute for Economic Research, believes German companies were too slow to adapt to technological changes, such as the rise of electric vehicles.
“They enjoyed the success of the 2010s and have been too slow in understanding that they need to change and adapt,” Fratzscher said.
The prolonged economic downturn has also affected public sentiment.
“The pessimism is enormous among businesses and citizens. That’s one of the main reasons why companies are not investing,” he added.
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What Germany’s next government must do
Many business leaders and economists argue that Germany’s next government must take bold steps to support economic recovery. One major suggestion is to ease constitutional limits on debt, allowing the government to increase investment in infrastructure, education, and digitalisation.
However, Fratzscher cautions that Germany’s political system, built on stability and consensus, makes rapid change difficult.
“For the past 75 years, Germany has been built on stability, with many checks and balances. That makes economic transformation slow. We need to change the mindset and act much faster,” he said.
As Germany prepares for its early national election, the incoming government will need to act swiftly and decisively. If the country fails to address its economic challenges, it risks falling further behind its global competitors—a scenario that could have long-term consequences for Europe’s largest economy.
