German Chancellor Friedrich Merz has warned lawmakers that the country’s economic outlook remains “very critical,” conceding that measures taken so far have failed to restore competitiveness as Berlin grapples with prolonged stagnation.
In a letter to members of his centre-right governing coalition on Tuesday, Merz said Germany would need to take “radical” political and legal steps in 2026 to reverse the slide.
Decisions adopted to date, he wrote, have not been sufficient to meaningfully improve the country’s economic performance, according to the German news agency DPA.
High cost of energy, slow structural reforms
Germany’s economy contracted in both 2023 and 2024, and winter forecasts published in December by leading economic institutes projected growth of just 0.1 percent in 2025.
Analysts cite high energy costs, weak global demand, slow structural reforms and a sharp drop in exports to the United States as key drags on recovery.
Since taking office in May 2025, Merz has pledged to revive Europe’s largest economy through large-scale public spending, alongside higher investment in defence and infrastructure.
His government has announced tax cuts and reform plans, but business groups warn that progress remains too slow to arrest the downturn.
