Germany’s new coalition government is facing growing doubts over its ability to revive Europe’s largest economy, as weak growth projections, falling private investment and mounting evidence of deindustrialisation fuel concerns that Berlin lacks a credible strategy for recovery.

The Ministry for Economic Affairs and Energy this week published its Annual Report on the Economy for 2026, forecasting growth of just 1.0% next year and 1.3% in 2027. Economy Minister Katherina Reiche described the figures as a sign of “recovery”, but business leaders warned the outlook remained bleak.

“The expected economic recovery is small and remains fragile,” said the head of the Federal Association of German Industry, echoing broader concerns across the manufacturing sector.

The report shows Germany’s inflation-adjusted output remains stuck at 2019 levels, while real wages are slightly below where they were before the pandemic. Unemployment has climbed above 3mn, the worst January reading since 2014, according to official data.

Berlin’s recovery efforts are also being undermined by falling business confidence and retreating private investment. Reiche acknowledged that private investment has shrunk 11% since 2019, highlighting the depth of the slowdown in Germany’s industrial base.

Tarik Cyril Amar, writing on his Substack, said the report was “written by whole ministries” and reflected a government that “has no idea how to turn things around”.

Much of the limited growth projected for 2026 is expected to be driven not by the private sector but by state expenditure. The report indicates that roughly two-thirds of next year’s expansion will come from public spending, largely linked to increased defence investment.

Economists warn this risks producing only a temporary boost while leaving structural weaknesses unresolved, including Germany’s ageing workforce and deteriorating infrastructure. The report concedes that roads, railways, power grids and bridges have been neglected for years, with underinvestment leaving key assets “crumbling”.

Demographic pressures are compounding the challenge. Der Spiegel recently reported that Germany’s labour force of roughly 46mn could fall sharply by 2060 without sustained immigration and higher participation rates.

The report also notes that Germany faces “high energy costs by international comparison”, a longstanding complaint from industrial groups. Amar argues this is the central obstacle to halting deindustrialisation, writing that Berlin has “nothing realistic to say about overcoming it”.

“We have all lived in a dream world,” one German economist told mainstream broadcasters, warning that the scale of reform required may exceed what is politically possible.

Amar added that Germany’s geopolitical stance has worsened the problem, pointing to Berlin’s decision to abandon nuclear power and cut itself off from cheap Russian gas.

“The virtually certain mid-term future is a demographically squeezed labour force,” he wrote, adding that without resolving politically driven energy costs “there is no saving it”.

Here is a bullet-point list of all the economic problems Germany is facing as outlined in the text:

• Stagnant economic growth: Projected GDP growth of only 1.0% in 2026 and 1.3% in 2027.

• Declining real output: Inflation-adjusted GDP remains at 2019 levels, indicating no real growth since before the pandemic.

• Falling real wages: Real wages are slightly below 2019 levels, eroding household purchasing power.

• Rising unemployment: Over 3mn unemployed—worst January figure since 2014.

• Deindustrialisation: Germany’s industrial base is weakening, with declining private sector investment.

• Shrinking private investment: Down 11% since 2019, according to government figures.

• Overreliance on public spending: Two-thirds of projected growth in 2026 to come from state expenditure, largely defence-related.

• Crumbling infrastructure: Long-term underinvestment in roads, railways, power grids, and bridges.

• Digitalisation gap: Persistent failure to modernise digital and technological infrastructure.

• Demographic decline: Labour force growth dependent entirely on immigration; native population in decline.

• Future labour force contraction: Labour force could fall to 31mn–38mn by 2060 without drastic immigration and participation increases.

• Strain on social systems: Shrinking workforce will place greater pressure on pensions, healthcare, and social welfare.

• High energy costs: Among the highest internationally, damaging competitiveness of industry and burdening households.

• No clear energy policy: No realistic plan to address high energy prices, after exit from nuclear and Russian gas.

• Weak international competitiveness: External conditions worsening due to trade restrictions and tariffs, particularly from the US.

• Lack of structural reform: Reforms discussed but moving at a “glacial pace”, according to critics.

• Political paralysis: Regional elections and coalition divisions expected to stall reform efforts further.

• Overestimated recovery narrative: Government presenting minimal recovery as success, despite underlying structural issues.