Following two consecutive years of economic contraction in 2023 and 2024, Germany is at a pivotal moment as a newly elected government takes charge.
Businesses are optimistic that the conservative CDU/CSU party, in coalition with the center-left Social Democrats, can implement policies to revive Europe’s largest economy in 2025. However, challenges such as high energy costs, weak consumer demand, and strong competition from China continue to weigh on growth prospects.
With incoming Chancellor Friedrich Merz prioritizing industrial expansion and job creation, key economic and energy metrics will provide insight into whether policy changes can drive a sustainable recovery. Below are some of the critical indicators to track in the months ahead.
Germany’s high energy costs have been a major concern for industries, affecting competitiveness on the global stage. Wholesale power prices, which averaged around €40 per megawatt hour (MWh) in 2020, soared to €235/MWh in 2022 following disruptions in natural gas supplies due to the Russia-Ukraine conflict. While prices fell to an average of €80/MWh in 2024, they have climbed above €120/MWh in 2025 due to rising regional gas prices.
The new government’s policies on renewable energy expansion and energy market reforms will be key in determining whether power costs can be stabilized. While plans are in place to increase renewable energy capacity, Germany’s continued reliance on natural gas means that external market factors will still influence electricity prices.
Natural gas remains a crucial part of Germany’s energy mix, generating 17% of the country’s electricity in 2024—the highest share since 2020. Since cutting reliance on Russian pipeline gas, Germany has turned to liquefied natural gas (LNG) imports from the US and other suppliers, which are significantly more expensive.
If Germany continues to depend on natural gas, government initiatives to secure lower-cost supplies could help reduce industrial energy expenses. However, fiscal constraints may limit the ability to provide subsidies or direct financial support to energy-intensive industries.
Germany’s industrial sector has faced significant challenges, particularly in energy-intensive industries like steel, chemicals, and fertilizers. Additionally, the country’s auto industry has been affected by slowing domestic demand and increased competition from Chinese car exports.
The new government has pledged to strengthen the industrial base and protect jobs. However, measures to boost domestic demand or offer tax incentives could face resistance due to Germany’s strict debt rules. Meanwhile, global trade tensions, including new US tariffs under President Donald Trump and ongoing disputes with China, may also limit Germany’s ability to increase exports.
Germany’s business community has expressed concerns over excessive bureaucracy and regulatory hurdles, calling for urgent reforms to enhance competitiveness. A survey by the German Chamber of Industry and Commerce (DIHK) found that nearly 90% of businesses see economic policy as increasingly unreliable, and 95% support reducing bureaucratic burdens.
Business leaders are urging the government to accelerate approval processes, lower corporate taxes, and address energy costs. A more business-friendly regulatory environment could play a crucial role in determining Germany’s economic trajectory.
