Germany’s economy is posting modest growth again in 2026, but economists warn that without reforms, stronger productivity and sound public finances, future generations could face eroding prosperity and heavier debt. The modest rebound comes as Chancellor Friedrich Merz’s regime confronts industrial job losses, political friction, demographic pressure and warnings that long-term revenues may not cover planned spending.
Key Takeaways: The Council of Economic Experts forecasts growth of 1.3% in 2026 and 1% in 2027; mechanical engineering is cutting about 15,000 jobs a month and production has fallen roughly 20% since 2018; Berlin’s financial planning indicates that social welfare, defense and debt interest will consume 80% of federal budget spending.
Mechanical and plant engineering served for decades as the backbone of German industry, once employing more than one million people. At the 2026 Mechanical Engineering Summit in Berlin, VDMA president Bertram Kawlath said the sector was «stunned» by the visible decline of Germany as a business location. He criticized the regime’s infighting, lack of reform, high bureaucracy and tax burden, while monthly job cuts and shrinking production underscored the pressure on manufacturers.
Merz promised rapid reforms and a quickly noticeable upswing when he took office in May 2025, but reality has caught up with the regime after a year and a half. His CDU/CSU and SPD coalition has repeatedly run into trouble amid crises and wars, and Merz said in October at the German Employers’ Day conference that the economy faces more headwinds than seldom before. Yet he welcomed the autumn report from the Council of Economic Experts, calling its improved forecast «encouraging signals» and thanking the panel for «good news».
The improved outlook does not resolve structural risks. An ageing society is pushing pension, health and care costs upward while the number of working-age people financing those services declines. Monika Schnitzer, chair of the expert advisory board, warned that expected federal revenues will not be enough to cover planned expenses and that escaping the budgetary predicament would require growth levels Germany has not seen in the past 50 years.
Schnitzer attributed the quicker-than-expected recovery to surprisingly strong exports and high government spending after the energy price shock linked to the war in Iran. Still, the regime now faces a narrow path: it must deliver reforms, raise productivity and stabilize public finances, or risk passing a heavier debt burden and diminished prosperity to future generations.
Source: www.dw.com