Germany faces the challenge of maintaining its global competitiveness

For decades, the German economy has been a pillar of stability and growth for the European Union. However, the region's engine is currently facing an unprecedented fear of economic decline and deindustrialisation. In times of great global turbulence and an ongoing trade war, the grand coalition returns to power in Germany to join forces and bring stability to a clearly export-oriented economy.

Economic outlook under new leadership

On 6 May, Friedrich Merz was elected the new Chancellor of Germany, the start of a coalition government consisting of the centre-right CDU/CSU and the centre-left SPD. However, this start was bumpy, as Merz was only elected in the second round of voting in the Bundestag - unprecedented in the history of the Federal Republic. It remains to be seen whether this is a sign of a lack of cohesion or a wake-up call for united action in decisive votes in parliament.

In any case, the new administration is facing major economic challenges, as GDP growth contracted in 2023 and 2024, and Germany´s export-driven economy is highly susceptible to US tariffs and global trade frictions. We currently expect zero growth this year, and a modest 0.9% rebound in 2026.

The new government has paved the way for a massive fiscal easing to ramp up defence and infrastructure spending. Its effects should be felt as of H2 of 2026, and partly compensate negative tariff effects. Corporate tax rates will be reduced by one percentage point per year through 2028, alongside the introduction of a 30% depreciation allowance for equipment investments until 2027. However, an in-depth structural reform agenda is not in the cards, as the coalition partners hold opposing views.

That said, we expect that the new German government will take a more active role in its EU policy than its predecessor. Regarding tariffs, the coalition has indicated its intention to support a medium-term trade deal between the EU and the US, and to strongly support Brussels in its efforts to seal free trade agreements in Latin America and Asia.

Three key factors for Germany's competitiveness

Under the framework conditions of a new administration and early doubts about its ability to govern smoothly, is Germany prepared to maintain its global competitiveness? Atradius, with the support of the consultancy Trendone, examines in its 'Future Study 2025' how Germany could face business challenges in the coming years. According to the study, three issues will be key to Germany's immediate future: strengthening technological innovation, the capabilities of its workforce and the evolution of its international relations.

1. Technological lead

A crucial factor for the future of the German productive fabric as a global actor is to ensure its position of technological leadership. The German manufacturing industry is a global benchmark in automation and production standards that contribute to sustainability. Its highly digitised and networked factories use digital twins and artificial intelligence to optimise processes, and algorithms and data play a central role in decision-making.

By integrating themselves into global value chains, manufacturing companies could successfully reposition the 'Made in Germany' brand, associated with the high-quality standards of its national production, as 'Created in Germany', regardless of where it is produced and assembled. At the same time, the search for geopolitical independence and economic attractiveness could drive Germany's reindustrialisation. High-tech companies, should seek to consolidate their position in Europe through its main market, investing in former German industrial regions, which could rise to the development of a new ecosystem that reinforces Germany's capabilities as a technological cluster in Europe.

2. A future-proof workforce

The shortage of skilled workers, in a context of an ageing population, is another of the main challenges facing German companies. To attract talent, many are transforming their corporate cultures towards a better work-life balance and self-regulating teams. Artificial intelligence is another factor of accelerated change: it increases labour productivity, reduces the skills gap and will require a profound transformation of the education sector, from a provider of knowledge to a trainer of digital skills.

3. International relations

The evolution of international relations towards a phase of multipolarity and the restructuring of the global economy will also be a determining factor. This is something that German companies is preparing for. The coronavirus pandemic has already put supply chains under severe pressure, and the Russian invasion of Ukraine triggered an energy and raw materials crisis. This is a new environment marked by growing geopolitical tensions and protectionist tendencies, in which strengthening regional trade agreements and diversifying supply chains will be essential.

The Future Study

With its three focus areas and ten hypotheses, the Future Study provides a guide for managers to develop future-proof strategies. Although the study focuses on Germany, it offers interesting insights and discussion material that can be relevant regardless of one's country.

Download the complete study