Annual Economic Report 2025 PDF Free Download

Name: Annual Economic Report 2025 PDF
Author: Dylan Q. Nguyen

1 / 142

2 views•142 pages

Annual Economic Report 2025 PDF Free Download

Annual Economic Report 2025 PDF free Download. Think more deeply and widely.

bmwk.de

2025

For a new economic

dynamism

bmwi.debmwk.de

REPORT

ECONOMIC

ANNUAL

Imprint

Publisher

Federal Ministry for Economic Affairs and Climate Action (BMWK)

Public Relations

11019 Berlin

www.bmwk.de

Status

January 2025

This publication is available for download only.

Design

PRpetuum GmbH, 80801 Munich

Central ordering service for publications of the Federal Government:

Email: publikationen@bundesregierung.de

Tel.: +49 30 182722721

Fax: +49 30 18102722721

This publication is issued by the Federal Ministry of Economic Affairs

and Climate Action as part of its public relations work. The publication

is available free of charge. It is not for sale and may not be used by

political parties or groups for electoral campaigning.

Table of contents

The 2025 Annual Economic Report of the German Federal Government .................................................................................................................5

I. The Federal Government’s economic and ﬁscal policy.............................................................................................................................................................................................. 6

A. Continuing structural reforms, boosting investment activity, increasing European

competitivenessit ...............................................................................................................................................................................................7

Continuing structural reforms, sustainably boosting competitiveness......................................................9

Creating investment incentives, reducing uncertainties .........................................................................................14

For Europe: completing the single market, reducing bureaucracy and strengthening

investment in public goods....................................................................................................................................................................15

Protecting the climate and preserving ecological boundaries .........................................................................17

B. The economic and ﬁnancial policy situation in 2025 .................................................................................................19

The economic situation: light at the end of the tunnel .........................................................................................19

Current ﬁscal policy situation: revenue trend and new EU spending rules........................................21

Climate policy: GHG emissions continuing to fall.........................................................................................................24

Welfare measurement: a broader perspective on well-being and convergence

processes in society........................................................................................................................................................................................26

C. Ten ﬁelds of action for new economic dynamism.........................................................................................................28

C.1 Investments: creating better framework conditions, boosting public

investment..............................................................................................................................................................................................................28

C.2 Regulation: driving forward the reduction of bureaucracy, boosting

competition ..........................................................................................................................................................................................................34

C. 3 Employment: expanding employment incentives, increasing labour

productivity.............................................................................................................................................................................................................39

C.4 Innovation: making more effective use of the opportunities offered by

digitalisation 46

C.5 Capital markets: increasing efﬁciency, facilitating startup ﬁnancing .............................................50

C.6 Energy: maintaining the momentum of the energy transition, reducing

system costs ..........................................................................................................................................................................................................55

C.7 Industry: spurring on competitiveness and modernisation......................................................................64

C.8 Foreign Trade and Investment: diversifying trade relations, increasing

resilience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70

2TABLE OF CONTENTS

C.9 Housing: increasing construction activity and housing supply, supporting

lower-income households ......................................................................................................................................................................77

C.10 Transport: modernising infra structure, driving forward the mobility

transition ...................................................................................................................................................................................................................83

D. Measuring welfare and social progress ....................................................................................................................................87

(I) Economic performance and basic needs .........................................................................................................................91

(II) Social justice and participation ................................................................................................................................................98

(III) Ecological limits................................................................................................................................................................................. 106

(IV) Future viability of the state and the economy ...................................................................................................112

II. The Federal Government’s 2025 annual projection ............................................................................................................................................................................................119

Overview: moderate recovery after a prolonged period of stagnation ............................................... 120

Foreign trade only gradually and cautiously regaining its footing .......................................................... 126

Uncertainty and weak demand are dampening investments ........................................................................ 129

Labour market plagued by economic stagnation ....................................................................................................... 131

Inﬂation levels off at 2%....................................................................................................................................................................... 132

Public consumption expenditure supports domestic economy ................................................................. 135

TABLE OF CONTENTS 3

List of illustrations

Figure 1: Index of labour productivity per hour worked in the EU, Germany and the USA

since 2000..............................................................................................................................................................................................10

Figure 2: Contributions to potential output growth in Germany .......................................................................12

Figure 3: Structural primary balance in relation to nominal potential output.......................................21

Figure 4: The price of CO2 in the EU Emissions Trading Scheme I....................................................................25

Figure 5: Development of gross ﬁxed capital formation as a percentage of GDP

(nominal).................................................................................................................................................................................................29

Figure 6: Number of unemployed persons per job vacancy......................................................................................39

Figure 7: Annual average social security contribution rates as a percentage of

gross earnings subject to contributions ................................................................................................................41

Figure 8: Market capitalisation and debt to equity ratio...............................................................................................51

Figure 9: Wholesale prices for electricity and gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55

Figure 10: International comparison of end consumer prices in the industrial sector . . . . . . . . . . . . . . . . . . . .56

Figure 11: Accelerating the approval process for the expansion of renewable sources

of energies and grid infrastructure .............................................................................................................................57

Figure 12: Development of industrial production...................................................................................................................64

Figure 13: Imports of goods and services worldwide as a percentage of GDP........................................71

Figure 14: EU free trade agreements ...................................................................................................................................................73

Figure 15: Interest rate developments and volume of residential property loans................................78

Figure 16: Share of federal transport investment (target) in GDP ........................................................................83

Figure 17: Gross domestic product (price-adjusted) ........................................................................................................122

Figure 18: Growth in the German sales markets................................................................................................................... 127

Figure 19: Indicators for investment in machinery and equipment................................................................. 130

Figure 20: Credit demand for corporate investments .....................................................................................................131

Figure 21: Contributions to growth in consumer prices............................................................................................... 133

Figure 22: Development of nominal and real wages and inﬂation ................................................................... 134

4TABLE OF CONTENTS

List of boxes

Box 1: The 2024 Growth Initiative (GI).............................................................................................................................................11

Box 2: Mario Draghi’s report on the future of European competitiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16

Box 3: Equivalent standards of living .................................................................................................................................................27

Box 4: National Strategy for Social Innovations and Social Enterprises.......................................................38

Box 5: International energy and climate policy negotiations ..................................................................................58

Box 6: G7 and G20 summits 2024 ..........................................................................................................................................................71

Box 7: Methodological revisions of various data sources .............................................................................................88

Box 8: Measuring bureaucratic burdens..........................................................................................................................................89

Box 9: Possible effects of a more restrictive US trade policy on the German economy ..........128

Box 10: Review of the 2024 Annual Projection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136

List of overviews

Overview 1: Key ﬁgures of the annual projection 20251...............................................................................................................................................

Overview 2: Key federal budget ﬁgures .............................................................................................................................................22

Overview 3: Key ﬁgures of the annual projection 20251..............................................................................................................................................123

Overview 4: Technical details of the 2025 annual projection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124

Overview 5: Contributions to GDP growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125

Overview 6: Key ﬁgures of the 2025 annual projection.................................................................................................. 138

Overview 7: Comparison between the 2024 annual projection and actual outcomes ..................139

2025 ANNUAL ECONOMIC REPORT OF THE GERMAN FEDERAL GOVERNMENT 5

The 2025 Annual Economic Report of

the German Federal Government

In accordance with section 2 of the Act to Pro-

mote Economic Stability and Growth, the Federal

Government hereby submits its 2025 Annual Eco-

nomic Report to the German Bundestag and the

Bundesrat. It also provides benchmark data for

the overall orientation of the economy in 2025, in

accordance with section 3 of the Act.

In Part I of the Report, the Federal Government

presents central priority fields of economic and

fiscal policy.1 As stipulated by the Act to Promote

Economic Stability and Growth, Part II of the

Report discusses the Government’s projection of

overall economic development in the current year.

The Federal Government would like to thank the

German Council of Economic Experts (GCEE) for

its detailed and comprehensive analysis of eco-

nomic developments last year and the outlook

for 2025, as well as for its discussion in its 2024/25

Annual Report of the guiding principles of eco-

nomic policy. In the Annual Economic Report, the

Federal Government comments on the Council

of Economic Experts’ 2024/25 Annual Report. In

order to assist the decision-making within the

Federal Government, a workshop was held in Ber-

lin on 18 November 2024 with representatives of

the ministries and the academic staff of the Coun-

cil of Economic Experts.

In preparing the Annual Economic Report, the

Federal Government discussed its economic and

fiscal strategy with the Länder and municipalities

within the framework of the Konjunkturrat für die

öffentliche Hand (a government economic advisory

council). This strategy was also discussed with union

representatives as well as with the Gemeinschaft-

sausschuss der Deutschen Gewerblichen Wirtschaft

(a joint committee that serves as a co-ordinating

body for German business associations).

1 The funding of new measures and programmes takes place within the existing departmental budget estimates and staffing plans of the relevant

sections of the budget. The citing of measures in this report does not prejudice either current or future budget negotiations.

I. The Federal

Government’s

economic and

fiscal policy

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 77

A. Continuing structural reforms,

boosting investment activity, increas-

ing European competitiveness

1. For two years now, the German economy has

been stagnating, which is due to cyclical, but

above all structural reasons. In cyclical terms,

the German economy is recovering more slowly

than expected from the economic consequences

of recent shocks. At the same time, Germany is

experiencing sluggish growth for structural rea-

sons. The gross domestic product (adjusted for

price and seasonal effects) in the fourth quarter of

2024 was roughly on a par with the same period in

2019.

2. In the course of the energy crisis triggered by

the Russian war of aggression in 2022-2023, soci-

ety as a whole succeeded in stabilising its energy

supply across all sources of energy and freeing

itself from its heavy dependence on Russian

energy imports (cf. AER 2023, Item 51 et seq. and

AER 2024, Item 107). The Federal Government was

able to cushion the immediate consequences of

the crisis with the temporary brakes on electricity,

gas and heating prices, the prevention of power

cut-offs as well as further emergency aid and one-

off payments. At the same time, prices for gas and

electricity have fallen significantly again. Elec-

tricity prices for new contracts in industry were

recently below the level of 2017 to 2020 (cf. Item

81). This reduction in energy prices is essential for

the Federal Government’s goal of ensuring that

Germany remains an important industrial loca-

tion. Despite the difficult situation, major invest-

ments in key technologies have been made during

this legislative period, further reducing existing

dependencies and thus increasing the resilience

of the location.

Most recently, the lingering loss of purchasing

power on account of the significant rise in prices

since 2021 has had a particularly strong impact on

the sentiment and consumer behaviour of private

households and thus on overall economic devel-

opment. Despite the significant drop in infla-

tion to 2.2% in 2024 and a noticeable rise in real

incomes, private consumption continued to pro-

vide only modest impulses in the second half of

2024. As well as a continued rise in the propensity

to save among private households, 2024 was char-

acterised by a sustained reluctance to invest. There

is now a clear overall economic underutilisation

of capacities due to weak demand, both in Ger-

many and abroad.

At the same time, despite the economic downturn,

more people than ever before recently had a job.

Employment reached an average high of around

46 million people last year, i.e. around 800,000

additional people since 2019. As a result of demo-

graphic trends, the rise in employment since the

beginning of 2023 has been exclusively attributa-

ble to foreign workers. This success is also due to

improved regulations promoting the immigration

of skilled labour. However, employment devel-

opments are influenced by different, and in some

cases opposing, sectoral patterns: the overall

decline in employment in manufacturing is offset

by growth in other sectors, such as startups, clean

tech and the pharmaceutical industry. Besides

cyclical factors, this reflects accelerated structural

change. There was also a noticeable increase in

employment in the service sectors, particularly in

healthcare and social services. In 2024, the aver-

age unemployment rate was back at the 6% mark

for the first time since 2016. Compared to the rest

of the EU, however, Germany continues to have

very low unemployment, despite the difficult eco-

nomic situation.

3. Beyond short-term developments, the current

weak economic growth is primarily a reflection

of structural causes. At 0.4% to 0.6%, the growth

8I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

rate of potential output, which has been declin-

ing for years, is also low by European standards.

In its Annual Economic Report 2024, the Federal

Government set out the main reasons for this in

detail. In essence, it is a question of the following

four fundamental structural developments:

(1) The geopolitical turning point (“Zeiten-

wende”) has been shaping international politics

since Russia’s war of aggression against Ukraine

in violation of international law; it calls for

additional expenditure, not least in Germany,

both for national and alliance defence and

for support for Ukraine. Added to this are the

increasingly confrontational trade policies of

key trading partners and international invest-

ment restrictions, which could fragment the

global economy even further. This entails fur-

ther growth risks and poses challenges for Ger-

many and the EU as a whole. China’s rise in the

value chain is increasing competition on global

markets, particularly in sectors in which Ger-

many has enjoyed a competitive advantage for

decades. Due to its traditionally strong focus on

exports, the German economy is more affected

by these developments than other economies.

(2) Demographic change and the associated

ageing of its society will become even more

important economically in the coming years

as the baby boomer generation enters retire-

ment and may exacerbate the shortages of

skilled labour. The age distribution of the pop-

ulation, along with a declining proportion of

people of working age, is having an increasing

impact on the labour market, meaning that

higher labour market participation and higher

employment levels, particularly among older

people, migrants and women, as well as further

immigration of skilled workers, are becoming

more important. At the same time, the financial

pressure on the social security systems is rising

noticeably. In view of the increasing shortages

on the labour market, productivity develop-

ment will play a key role in maintaining pros-

perity in the years to come.

(3) Anthropogenic climate change and its

increasing escalation to extreme weather cri-

ses with very high economic and social costs

highlight the urgency of pushing ahead with

global decarbonisation. Greenhouse gas (GHG)

emissions have fallen recently in both the EU

and Germany. The required restructuring of the

economy on the way to achieving greenhouse

gas neutrality is accompanied by corresponding

costs and calls for extensive private and public

investment.

(4) Last but not least, locational factors that have

been neglected in recent decades are hampering

productivity and growth potential.

Although investment expenditure in the fed-

eral budget has been increased in recent years,

an immense public investment backlog relat-

ing to digitalisation, infrastructure and defence

has built up over many years. Furthermore,

European requirements, reporting and verifi-

cation obligations as well as stricter regulation

have led to additional and, at times, excessive

bureaucracy. Last but not least, despite substan-

tial progress having been made, planning and

authorisation law for infrastructure projects

is still highly complex, which often leads to

lengthy procedures.

Compared to key competitors, the framework

conditions for employment, investment and

innovation are also in need of improvement.

The financial markets in the EU are too frag-

mented; this stands in the way of unhindered

access to private capital. Particularly for start-

ups, administrative hurdles are sometimes too

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 9

high, which reduces the attractiveness of invest-

ments. The enormous potential of innovation

has, therefore, not yet been fully exploited (in

Germany and the EU as a whole).

For the medium and long-term development of

the economy, the Federal Government consid-

ers the challenges in the education sector, from

early childhood education to vocational train-

ing, to be particularly relevant. For example, at

13.1% in 2023, the proportion of young people

aged between 18 and 24 who have neither a

vocational qualification nor a higher education

entrance qualification and are not in education

or training was recently well above the EU aver-

age (9.5%).

4. In view of the scale of the challenges, it is all the

more important to recognise Germany’s immense

strengths. There is scarcely any other country with

such a variety of excellent companies, especially

small and medium-sized ones. The high level of

expertise in German companies, the institutional

research landscape and the associated innova-

tion potential in Germany continue to be valued

around the world. Taking into account the sig-

nificantly lower level of public and private debt

compared to other leading economic nations,

these strengths form a good starting position for

addressing the major macroeconomic investment

needs and restoring competitiveness again. The

openness to the outside world, both in terms of

international trade and as regards those people

who wish to work in Germany, still contributes

significantly to the strength of Germany as a busi-

ness location today. The rule of law and reliable

institutions are of great value, especially in times

of geopolitical upheaval. Lastly, the fact that the

country is firmly embedded in the European

Union and the European single market remains a

major strength of Germany as a business location

and one that must be extended further.

5. With a view to the EU as a whole, a compara-

tively weak productivity trend that has persisted

since the early 2000s can be identified as the main

reason for lower growth compared to the USA.

The OECD data show that there has been signif-

icantly higher growth in labour productivity in

the USA since the turn of the millennium than

in the EU and Germany. Since 2000, labour pro-

ductivity in the USA has grown by 43%, almost

twice as much as in Germany (cf. Figure 1). This

development is also driven to a large extent by the

tech sector. Labour productivity in the EU mem-

ber states varies. It rose by around 25% overall

between 2000 and 2023 and thus developed some-

what more dynamically than in Germany, but it

was significantly weaker than in the USA, also

against the backdrop of the lower starting levels

and correspondingly stronger growth rates in new

EU member states. The reasons for the different

dynamics in the EU and the USA are primarily

due to a significantly slower growth in the capital

stock of information and communication tech-

nology as well as a generally less efficient alloca-

tion of production factors in the EU.

Continuing structural reforms, sustainably

boosting competitiveness

6. In order to strengthen the recently weak growth

potential of the German economy (cf. Figure 2)

and counter the structural challenges, the Federal

Government has increasingly been focusing on

supply-side reforms since the start of this legis-

lative period. The topic of reducing bureaucracy,

including speeding up planning and approval pro-

cedures, has been prioritised in recent years and

numerous measures have been initiated with the

aim of triggering a trend reversal towards notice-

able reductions (cf. Item 7 and Chapter C.2; also

Box 8). In order to strengthen the labour supply,

the Federal Government has brought about the

conditions for easier and faster immigration of

10 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

skilled workers and invested in the quantitative

and qualitative expansion and quality of child-

care (cf. Item 8 as well as Chapter C.3). Beyond the

acute stabilisation measures in the energy price

crisis, the government has laid the foundations

for significantly stronger momentum concern-

ing the expansion of renewable energies and the

grid infrastructure and has rapidly built up an

infrastructure for liquefied natural gas (LNG) (cf.

Item 9). So as to support the transformation of the

industry and increase the resilience of the loca-

tion, it has enabled the ramp-up of new technol-

ogies and promoted the establishment of com-

panies in key technologies (cf. Item 10). The over-

arching framework conditions for investments

were improved in particular by means of more

attractive depreciation conditions, more extensive

options for offsetting losses, and a considerable

increase in tax incentives for research and devel-

opment expenditure. The Future Fund and the

WIN initiative (“Growth and Innovation Capital

for Germany”) are intended to boost the ecosys-

tem for venture capital and so facilitate access

to capital for innovative startups. Investment in

transport infrastructure has been significantly

increased, particularly in the rail sector. At the

same time, significant progress has recently been

made with regard to digital infrastructure. Diver-

sification of foreign trade relations has progressed

and new free trade agreements such as the one

with the Mercosur states have been negotiated or

are in progress. All of this helps to strengthen Ger-

many as a business location in the long term.

The Federal Government has consistently pursued

this course of reform with the growth initiative

adopted by the Federal Cabinet in the summer of

2024 (cf. box 1).

EU 27 (2000=100) DE (2000=100)USA (2000=100)

100

105

110

115

120

125

130

135

140

145

150

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Figure 1: Index of labour productivity per hour worked in the EU, Germany and the USA

since 2000

Source: OECD, labour productivity per hour worked (2000 = 100), note: the graph does not allow any conclusions to be drawn about the actual level of productivity.

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 11

7. The Federal Government has taken numerous

steps to reduce bureaucracy and speed up plan-

ning and authorisation procedures. Besides mak-

ing progress in the context of overarching laws

aimed at cutting bureaucracy (most recently the

Bürokratieentlastungsgesetz (BEG) IV), the Federal

Government has developed, among other things,

the instrument of reality checks, which is now to

be applied across all departments. In November

2023, the Federal Government and those of the

Länder jointly agreed on the “Pact for Accelerating

Planning, Approval and Implementation” to fur-

ther promote acceleration across the board and so

support growth. The pact, which has already been

implemented to a large extent, simplifies proce-

dures, shortens deadlines, modernises the law and

reduces individual review steps in approval proce-

dures.

Against the backdrop of the structural challenges

mentioned above, it is not only important to

continue the approaches for effectively reducing

excessive bureaucracy, such as those contained in

the Growth Initiative. The ability of state struc-

tures to act and adapt must also be scrutinised

in parts, and the state must be prevented from

being overburdened with additional, unnecessary

tasks. In view of the rapid changes and increas-

ing demands on the state, a specific focus on

efficiency within the public sector is required, in

addition to possible further measures to boost

economic performance.

8. In order to stabilise or even expand the labour

supply despite the impacts of demographic trends,

the Federal Government has implemented or ini-

tiated reforms to make better use of the potential

Box 1: The 2024 Growth Initiative (GI)

With its Growth Initiative of 17 July 2024, the Federal Government adopted a comprehensive package of

measures aimed at increasing the growth potential of the German economy by systematically improving sup-

ply conditions.

The package focuses on providing targeted relief for companies and private individuals in order to create the

scope and incentives for investment and innovation. Particular mention should be made here of the further

improvement in depreciation conditions through the extension of the declining balance method of deprecia-

tion and the increase in the depreciation rate, as well as the further extension of the research allowance. While

these two measures could no longer be implemented in this legislative period, the Bundestag and Bundesrat

have decided to equalise bracket creep for 2025 and 2026.

The package also provides for a further reduction in unnecessary bureaucracy by, for example, defining a bur-

den reduction path, simplifying public procurement law, limiting bureaucratic burdens from EU regulations,

and raising the thresholds in the field of data protection. To limit the burden of reporting obligations, the

Federal Government is calling on the EU Commission to significantly reduce the very extensive requirements

regarding the content of sustainability reporting, particularly through the Corporate Sustainability Reporting

Directive (CSRD) and the EU Taxonomy Regulation. As a result, this will also affect the reporting obligations

under the national Supply Chain Due Diligence Act (“Lieferkettensorgfaltspflichtengesetz”), as these are to be

harmonised with European standards as part of the implementation of the Corporate Sustainability Due Dili-

gence Directive (CSDDD). Despite the premature end of the coalition government, the extension of the reality

checks to all ministries as well as the temporary increase in the direct order value limits for federal contracting

authorities, for example, have been implemented.

A large part of the package of measures is aimed at improving work incentives and faster (re-)integration into

the labour market so as to exploit employment potential. These include, in particular, measures to improve

→

12 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

work incentives for people receiving citizen’s benefit (“Bürgergeld”), as well as financial incentives to increase

weekly working hours and to encourage older people to work longer voluntarily. Lastly, the third Child Day

Care Quality Act and the sub-legislative amendment to work opportunities have been implemented from this

area of measures.

In addition, Germany’s financial market is to be strengthened and financing options improved, particularly for

young, dynamic companies. To this end, the Growth Initiative provides for better tax conditions for venture

capital investments, an acceleration of the Future Fund and a strengthening of exit channels. Furthermore, the

Federal Government strongly advocates consolidating the Capital Markets Union

Finally, the Growth Initiative also includes measures to limit and reduce energy costs. In this context, exam-

ples include the stabilisation and expansion of the electricity price package, the enabling of CO2 storage, a

new flexible market design for power plants and renewable energies as well as the acceleration of the hydro-

gen ramp-up. The extension of electricity price compensation until 2030 has already been implemented. The

parliamentary procedure for ending the temporary reduction in electricity tax for companies in manufacturing,

agriculture and forestry was not able to be finalised during this legislative period. With regard to the Carbon

Border Adjustment Mechanism (CBAM), the Federall Government has also made it clear in its Growth Initia-

tive that it wants to advocate WTO-compliant protection for exporters by equalising CO2 costs at EU level in

order to counteract any distortion of export prices caused by domestic CO2 pricing. The Carbon Management

Strategy and corresponding amendments to the Carbon Dioxide Storage Act to enable and ramp up CCS/CCU

applications could no longer be applied in this legislative period.

Total factor productivity Gross capital stock Labour input (hours) (L) Potential output (price-adjusted, year-on-year change in %)

-1.0

-0.5

0.0

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

Percent, percentage points

Figure 2: Contributions to potential output growth in Germany

Source: Own calculations as of: annual projection of the Federal Government for 2025 (January 2025).

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 13

labour force. The Federal Government is invest-

ing in the expansion and quality of child day care,

among other reasons in order to better tap into

the labour market potential of mothers. With the

further development of skilled labour immigra-

tion, the Federal Government has also initiated

comprehensive measures for accelerated and less

bureaucratic skilled immigration. At the same

time, numerous obstacles for existing immigrants

to integrate into the labour market have been

removed. With its so-called Job Turbo initiative, the

Federal Government is pursuing its goal of rapidly

and sustainably integrating recognised refugees in

receipt of citizens’ benefits into the labour market.

Due to the many challenges that also affect the

labour market, further measures need to be

taken. The underlying objectives of increasing the

labour supply of older people, transfer recipients

and migrants should be pursued further. Further

reforms are required to better unlock the labour

market potential of women. Sufficient, high-qual-

ity child day care places are a key factor in the early

education phase with long-term positive effects on

all other phases of education and also in view of the

worsening shortage of skilled labour. Last but not

least, Germany has a relatively high tax burden on

the earned income of low and middle income earn-

ers, which is to be reduced in the years to come.

9. Beyond the immediate management of the

energy price crisis, the Federal Government has

structurally amended various energy laws since

2021 and introduced measures to speed up plan-

ning and approval procedures in order to acceler-

ate the expansion of not only renewable sources

of energy but also the expansion of the grid. The

past two years have seen record expansion and

approval rates for renewable energies. In 2023,

more than half of the nation’s power requirements

were covered by renewable energies for the first

time. This trend has stabilised in 2024 as a result

of the continuous expansion of renewable energy

plants. With the abolition of the Renewable Energy

Sources Act (EEG) levy on 1 January 2023 and the

compensation of the EEG differential costs by the

Federal Government as well as the measures con-

tained in the electricity price package, state-in-

duced price components for electricity were also

significantly reduced, thus improving the compet-

itiveness of the industry. Supply security in Ger-

many is at a very high level, although geopolitical

risks have increased. The Federal Government has

responded to this by diversifying energy import

structures and securing reserve capacities in the

electricity sector.

In the tradition of the social market economy, the

state has always played an active role with regard

to the framework conditions for supply security

and affordable energy prices. Particularly with a

view to the competitiveness of industry, the Fed-

eral Government also considers it essential to

relieve consumers of the increased transmission

grid charges associated with the investments in

the grid infrastructure that are required for a suc-

cessful energy transition (cf. Item 83). Taking into

account the conditions of the EU internal market,

targeted relief with regard to electricity costs and

the efficient support of domestic energy produc-

tion in conjunction with the pricing of CO2 emis-

sions are at the heart of a transformative supply

policy. In addition to the current electricity price

package and the implemented extension of elec-

tricity price compensation, a permanent contin-

uation of the reduction in electricity tax for com-

panies in manufacturing, agriculture and forestry

– as already decided in the Growth Initiative – is

also appropriate. Furthermore, the stabilisation

and reduction of transmission grid fees, also using

public funds, would make a positive contribution.

When continuing and further developing the

monitoring of the energy markets and crisis pre-

vention, strategically strengthening the resilience

of the energy supply is vital.

14 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

In order to further reduce the system costs of the

energy transition, efficiently integrating renew-

able energies, storage systems and new demand

structures (e.g. in the area of electromobility)

into the energy system is essential. The Federal

Government considers modernising the market

mechanisms based on the existing system and

adapting the regulatory framework accordingly as

necessary. This includes strengthening incentives

that benefit the system in the electricity market

design via local signals, a significant flexibilisation

of the electricity system and an effective mech-

anism to ensure sufficient available controllable

capacities.

10. At the same time, the Federal Government has

laid the foundations for the ramp-up of hydro-

gen-based value-added processes during this

legislative period and has launched key points

and a bill on the storage and reutilisation of CO2

(CCS/CCU). Green lead markets can also be used

to strengthen demand for green raw materials,

products and technologies; these ensure that it is

worthwhile for suppliers to ramp up production

in certain areas. It has also been possible to tackle

existing dependencies in the field of key technol-

ogies, such as hydrogen, battery cell production,

microelectronics, digital technologies and bio-

technology. In recent years, major investments

have been made in Germany in these areas, partly

with the support of the Federal Government, and

this has increased the country’s resilience.

With its National Security and Defence Industry

Strategy, the Federal Government is also creat-

ing the political, economic, regulatory and social

framework conditions for the required security

and defence capability, as well as contributing

to increasing innovative capacity and offering

opportunities for additional value creation.

Creating investment incentives, reducing

uncertainties

11. The Federal Government has taken and ini-

tiated important reform steps to boost Germa-

ny’s competitiveness and increase the economy’s

growth potential. Against the backdrop of the

great pressure on the economy to adapt in view

of the transition to climate neutrality, the digital

transition and the required increase in compet-

itiveness, considerable financial resources – pri-

marily private – must be mobilised in a brief space

of time in order to invest in new technologies,

infrastructures and processes and to open up new

growth markets. This will require reliable frame-

work conditions, but also additional investment

incentives. The reluctance on the part of investors

and consumers can also be attributed to the recent

high level of uncertainty among households and

companies. In view of the weak cyclical momen-

tum at the current margin, the degree of capacity

utilisation in the German economy has recently

fallen further.

12. The Federal Government’s fiscal policy has

been moderately restrictive since 2023 as a result

of the scaling back of crisis-related relief and sta-

bilisation measures that were necessary to over-

come the COVID-19 and energy crisis, as the

consistent assessments of the IMF, OECD and the

European Commission also reveal. This course

should also be seen in the context of the tempo-

rarily high rates of price increases, which have

decreased significantly since the end of 2023, but

remained at an elevated level. In the wake of the

reduction in fiscal space in the Climate and Trans-

formation Fund totalling €60 billion as a con-

sequence of the ruling by the Federal Constitu-

tional Court in November 2023, certain economic

policy projects had to be given greater priority.

This affects, in particular, financial incentives for

investments by firms and households and is likely

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 15

to have increased uncertainty among economic

players in the meantime.

The Federal Government’s financial policy aims

to increase growth potential through greater pub-

lic investment and incentives for private invest-

ment, while at the same time keeping a close

eye on the long-term sustainability of public

finances. The Federal Government’s investments

have been strengthened in recent years, but a fur-

ther ramp-up is required in the coming years in

view of existing needs. The (structural) budget

deficit has been rapidly reduced by international

standards – based on the very high expenditure

caused by the crisis in the wake of the COVID-

19 pandemic and the energy crisis. At the same

time, fiscal policy taken as a whole did not pro-

vide any discretionary stimulus for an economic

recovery last year. Moreover, Germany has a low

public debt ratio by international standards. Most

recently, the unweighted average of the other G7

countries’ budget deficits, adjusted for cyclical and

one-off effects as well as interest expenditure, was

almost twice as high as in Germany. These circum-

stances must be taken into consideration when

comparing economic development in recent years

with other major industrialised nations and with

regard to the room for manoeuvre for increasing

public investment.

13. Against the backdrop of major structural chal-

lenges, economic and financial policy will face a

double challenge in the future: it is important to

consistently pursue the path of structural reforms

that has been taken in recent years and, at the

same time, to strengthen the confidence of eco-

nomic players. The fields of corporate investment

and innovation as well as R&D are of particular

importance for medium-term growth prospects.

If the improvement of economic framework con-

ditions and the use of public funds induce future

investments on a macroeconomically relevant

scale, this may have positive effects on both the

supply and demand side. Examples of possible

impulses to strengthen investment activity would

be further improvements in terms of an innova-

tion-friendly tax environment or the introduc-

tion of an unbureaucratic and uncomplicated

tax credit for business investments (investment

premium). This would also increase the attractive-

ness of Germany as a business location for foreign

investors. Further potential demand-side stimuli

could be considered for commercially used e-cars,

climate-friendly new housing construction or

social housing. In view of the foreseeable increase

in expenditure requirements, particularly as a

result of demographic change, the federal budget

needs to be more orientated towards the future.

For Europe: completing the single market,

reducing bureaucracy and strengthening invest-

ment in public goods

14. The EU and its Member States share struc-

tural strengths, including high standards in edu-

cation, health, social security and legal certainty,

a broad and often excellent research landscape

and lower material inequality compared to the

US and China. These strengths, combined with

the potential of a domestic market of almost

450 million people, provide a valuable basis for

economic growth and social stability. However,

the realisation of this potential of the EU and its

member states is restricted by a number of struc-

tural challenges similar to the ones prevailing in

Germany. The drastically deteriorating interna-

tional security environment is leading to rising

energy costs, a need for higher defence spending

and a weakening of the multilateral trade order,

and calls for significantly improved integration

and coordination within the EU. At the same time,

the EU as a whole is also facing the challenges of

demographic change and the need for decarboni-

sation. Besides this, neglected locational factors in

16 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

Europe, in particular excessive bureaucratic bur-

dens, reduce the competitiveness of the Member

States.

15. The reports presented in 2024 by Mario Draghi

regarding the future of European competitiveness

(cf. Box 2) and Enrico Letta on the future of the

EU single market identify a correspondingly great

need for action at European level. The findings

of the Letta and Draghi reports are to feed into

the work of the new European Commission and,

in particular, contribute to the development of

the new Clean Industrial Deal, which is to be pre-

sented in the first 100 days of the Commission’s

new term of office. On the recommendation of

Latvia, the European Council instructed the Com-

mission on 18 April 2024 to present a horizontal

single market strategy by June 2025. The Federal

Government welcomes the reports and regards

them as important contributions that will be

carefully examined; it supports an ambitious and

comprehensive overall agenda in prioritised fields

of action along Member State interests in order to

strengthen Europe’s ability to act internally and

externally and to secure the prosperity of its citi-

zens.

16. Specifically, the Federal Government sees

potential for both expansion and optimisation at

the European level. A noticeable reduction in the

bureaucratic burdens arising from EU law for all

companies, especially SMEs, is a priority. The Fed-

eral Government is strongly in favour of notice-

ably reducing and simplifying the requirements

of EU law. This is why it expressly welcomes the

fact that the new EU Commission is increasingly

addressing these issues. Furthermore, barriers to

the single market need to be removed and the EU

Box 2: Mario Draghi’s report on the future of European competitiveness

The report presented by Mario Draghi on 9 September 2024 at the request of the EU Commission analyses

challenges and proposes a three-pronged strategy to promote growth and stability. The EU is facing factors

that are weakening growth, such as falling productivity, weaker foreign trade and rising energy prices. Draghi

emphasises three key areas of action:

Closing the innovation gap: The EU invests less in research and development (R&D) than the US – with lower

private investment making up the difference – and its productivity growth is suffering as a result. Improving

the framework conditions for private investment, a joint R&D strategy as well as a stronger focus on education

and skills could all significantly strengthen Europe’s innovation potential.

Decarbonisation and competitiveness: Draghi calls for competitive energy prices and advises taking an inte-

grated approach to climate and economic policy. By expanding LNG procurement networks and power pur-

chase agreements, the EU should be able to reduce energy costs and defend its leading position in clean tech-

nologies such as wind power.

Resilience and reduction in dependencies: Draghi recommends a European foreign trade policy that focuses

on critical raw materials and key technologies. The aim is to reduce the risks of dependency, particularly on

China, and to protect strategic industries. This will help to secure the EU’s long-term competitiveness.

To implement this, Draghi proposes greater single market integration, capital markets union and the simpli-

fication of bureaucratic processes. A Commission Vice-President for Simplification could reduce unnecessary

bureaucratic hurdles; this would benefit companies by easing the burden of reporting obligations.

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 17

19. The Federal Government is committed to open

global trade under fair competitive conditions

and is thus in favour of a rules-based, sustainable

and ambitious EU trade policy to counteract the

fragmentation of the global economy. In this con-

text, it is important to make rapid progress at the

EU level in concluding further trade agreements.

The close and intensive trade relations with the

USA must be maintained and, where possible,

expanded strategically.

Protecting the climate and preserving

ecological boundaries

20. With advancing climate change, the risks of

irreversible environmental changes are increasing,

not least with considerable consequences for the

foundations of economic value creation. The direct

impacts of climate change range from an increase

in the average annual temperature and increas-

ingly frequent extreme weather events such as

floods and low water levels to structural changes

in financial and labour markets as well as health

risks, impairment of food supply, water availability

and loss of habitats and, consequently, migration

pressure. Current research findings reveal that as

climate change progresses, value creation losses in

the double-digit GDP range are possible at a global

level (cf. also AER 2022, Item 12).

21. For this reason, it is still in Germany’s inter-

est to make national, EU-wide and international

contributions to reversing global greenhouse gas

trends and, at the same time, to take measures

to adapt to climate change. Both Germany and

the EU have set the course for transforming the

economic sectors. With the European Fit for 55

package and its national application, far-reach-

ing, ambitious measures for a competitive,

resource-efficient economy in line with the Euro-

pean Green Deal and the European climate target

have been launched (cf. AER 2024, Item 209).

Capital Markets Union needs to be deepened with

a series of measures. Young, innovative companies

with growth prospects would particularly bene-

fit from increased economies of scale and better

access to private funding. The deepening of the

EU Capital Markets Union is vital in order to cover

the considerable financial requirements of the

transformation, which the EU Commission esti-

mates to be at least €750 billion a year.

17. The Federal Government sees a further impor-

tant need for action with regard to strengthen-

ing the EU’s global competitiveness; besides an

agenda for investment, research, innovation and

simplification, this also requires close cooperation

between the Member States on EU industrial pol-

icy in order to take better account of externalities

and so make more efficient use of the funds spent.

The Federal Government also sees a need for addi-

tional action in the expansion of European trans-

port and energy infrastructures, particularly in the

cross-border closure of gaps in networks. Action

must also be taken to secure skilled labour in the

EU Member States.

18. The Federal Government is expressly in favour

of investment in European public goods. As such,

the area of security and defence should also be

strengthened. The Federal Government supports

the development of a medium-term EU defence

industry policy. The Federal Government advo-

cates financial incentives and a legally secure

framework in order to promote joint procure-

ments and strengthen standardisation, interopera-

bility and competitiveness. The focus should be on

procurements within the EU, but without impos-

ing a strict requirement so as to maintain the flex-

ibility to procure from allies outside the EU. As

proposed in the Draghi report, the discussion on

how to prioritise the financing of key European

public goods in the EU’s multiannual financial

framework should be continued.

18 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

Nationally, the German Climate Change Act is

the central steering instrument for achieving the

national climate targets. Since 2024, the core com-

ponent has been a multi-year and cross-sectoral

overall calculation for the readjustment of climate

measures and for forward-looking climate action.

The overall emissions targets already set in 2021

remain in place. Against this backdrop, the Federal

Government has carried out numerous effective

climate measures in recent years, both in the indi-

vidual sectors and across sectors. Besides reducing

greenhouse gas emissions and strengthening nat-

ural sinks, the Federal Government is developing

a “Long-term Strategy on Negative Emissions”

for 2025, which creates a common understand-

ing among all stakeholders in Germany on how

to deal with unavoidable residual emissions and

defines targets for technically generated negative

emissions. It is harmonised with the regulation for

the certification of permanent CO2 removals, car-

bon-storing land management and CO2 storage in

products (CRCF), which has come into force and

creates uniform EU-wide standards and has thus

increased incentives for removing CO2 from the

atmosphere. At the same time, Germany is cam-

paigning on the international stage for ambitious

agreements to reduce greenhouse gas emissions in

line with the goals of the 2015 Paris Agreement.

22. The successful transformation of the energy

system and key economic sectors is an essential

prerequisite for the long-term competitiveness of

the German economy. Decarbonisation reinforces

the resilience of our economy against renewed

supply-side distortions in fossil fuels. The pric-

ing of CO2 is becoming increasingly important

as a core element in an efficient mix of pricing,

regulatory measures and subsidy programmes,

flanked by advisory and support services. In order

to mobilise the necessary investments, it is imper-

ative that the economy and private households

enjoy planning certainty. Reliable framework con-

ditions along with a consistent economic and cli-

mate policy across legislative periods are prerequi-

sites for this.

At the same time, precautions must be taken to

increase the resilience of ecological systems, the

economy and society and to maintain equal living

conditions in the regions of Germany in the face

of increasing climate change impacts. The Federal

Climate Change Adaptation Act (KAnG) entered

into force on 1 July 2024; it lays the foundations

for all administrative levels to take strategic pre-

cautions against the consequences of climate

change.

23. There is a growing body of scientific knowl-

edge that ecological limits have already been

exceeded or are in danger of being exceeded, and

not just in terms of the climate. The ongoing loss

of biodiversity, the deterioration of ecosystems

and increasing levels of environmental pollution

worldwide all represent serious and far-reach-

ing environmental changes. The consequences

of these transgressions jeopardise the prosper-

ity of current and future generations. A decisive

stop must be put to the negative interactions that

encourage the further deterioration of our eco-

systems. The EU Nature Restoration Law, which

came into force in August 2024, sets staggered

restoration targets for 2030, 2040 and 2050 by set-

ting targets for the Member States to achieve. The

National Biodiversity Strategy 2030 (NBS 2030)

adopted by the Cabinet on 18 December 2024

implements the biodiversity targets of the Kun-

ming-Montreal Global Biodiversity Framework

of 2022 and the EU Biodiversity Strategy for 2030

with ambitious targets and measures in various

fields of action at national level aimed at counter-

ing the loss of species, habitats and intraspecies

diversity.

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 19

26. In view of the ongoing domestic and geopo-

litical uncertainties, the weak domestic economic

development of the past year is likely to continue

for the time being. Economic momentum is not

expected to pick up somewhat until later in the

year, when there is greater clarity about the future

economic, financial and trade policy environment

in Germany and abroad. Any stimulus in growth is

likely to come primarily from the domestic econ-

omy: private consumption is likely to be charac-

terised by a wait-and-see attitude at the start of

the year on account of the continuing uncertain-

ties, but should pick up from spring onwards once

the new government has been formed. Overall,

a moderate increase in consumption of 0.5% is

expected this year compared to the previous year.

The development of investment in machinery and

equipment in the first six months of 2025 is also

likely to be characterised by increased domestic

and geopolitical uncertainty and subdued demand

from Germany and abroad. All in all, however,

growth of 1.1% is expected in 2025, partly because

government investment in equipment from the

Bundeswehr special fund will provide some pos-

itive stimulus. Construction investment, on the

other hand, is likely to fall by an annual average

of 0.6% in 2025 compared to the previous year,

despite the slight upturn at the current margin.

The Federal Government also expects exports to

fall again by 0.3% as a result of a structural decline

in competitiveness accompanied by increasing

geopolitical and trade tensions. With domestic

demand picking up slightly, imports are expected

to expand by 1.9% at the same time, meaning that

foreign trade is likely to make a negative contri-

bution to GDP growth of 0.9 percentage points in

purely arithmetical terms.

27. The Federal Government expects consumer

prices to develop moderately overall in the projec-

tion period, fluctuating around the ECB’s two per

cent target for the eurozone as a whole. Although

B. The economic and financial policy

situation in 2025

The economic situation: light at the end of

the tunnel

24. According to provisional annual figures from

the Federal Statistical Office, price-adjusted gross

domestic product (GDP) decreased by 0.2% in

2024. This corresponds to the expectation from

the autumn projection. Since the COVID-19 pan-

demic and the Russian invasion of Ukraine, the

German economy has stagnated as a result of the

associated rise in energy prices and loss of pur-

chasing power as well as increasing structural

challenges due to demographic change, growing

geopolitical fragmentation and declining com-

petitiveness. While growth impetus came pri-

marily from public and, to a lesser extent, private

consumer spending, investments in machinery,

equipment and buildings declined significantly.

Exports also declined due to weak global demand

for industrial goods and an increasingly difficult

competitive position, particularly in relation to

China. At the same time, imports virtually stag-

nated as a result of weak overall demand, meaning

that, on balance, foreign trade made a negative

contribution to growth.

25. In its annual projection for 2025, the Fed-

eral Government expects a moderate increase in

price-adjusted gross domestic product of 0.3%.

The significant downward revision compared to

the autumn projection is mainly due to the fact

that the measures of the Growth Initiative could

only be partially applied as a result of the prema-

ture end of the governing coalition. Moreover, for-

eign trade risks have increased significantly with

regard to the announced US trade policy, which is

dampening export prospects.

20 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

the inflation-dampening effects of energy are

tending to fade, prices on the futures markets do

not currently indicate that there will be any fur-

ther significant price rises. However, a number of

administrative price increases took effect in early

2025, such as the CO2 pricing in the Fuel Emis-

sions Trading Act, increases in postage for letters

and parcels, and the higher price for the monthly

transport ticket, the “Deutschlandticket”, which

will increase the inflation rate compared to the

previous year. These price-increasing effects are

countered by a number of inflation-dampening

factors at the upstream stages of the value chain

as well as slightly lower wage settlements than in

previous years. Against this background, the Fed-

eral Government is expecting an average inflation

rate of 2.2% in 2025.

28. The development of the labour market has

recently weakened noticeably in the face of eco-

nomic stagnation. Although employment reached

a new high of 46.1 million people in 2024, growth

came to a standstill in the second half of the year.

Early indicators point to a further decline in the

demand for labour. The Federal Government thus

expects employment to stagnate in the current

year. Any increase in employment in the social

services sector is likely to be offset by a further

reduction in employment in the manufactur-

ing sectors. The moderate economic recovery

that is expected will only have an impact on the

labour market with some delay. However, given an

increasing skills mismatch between labour sup-

ply and demand, employment prospects for the

unemployed are likely to remain difficult, with the

result that unemployment is expected to rise by

an annual average of 120 thousand people.

1 Until 2024, preliminary calculations by the Federal Statistical Office, as of January 2025.

2 In relation to labour force; definition by the Federal Employment Agency.

3 Changes in inventories/net exports in % of GDP of the preceding year (= contribution to GDP growth).

Overview 1: Key figures of the annual projection 20251

Sources: Federal Statistical Ofﬁce; the Federal Government’s 2025 Annual Projection.

2023 2024

Annual

Projection

2025

Change as compared to preceding year in %, unless indicated otherwise

FORMATION of gross domestic product (GDP)

(price adjusted) -0.3 -0.2 0.3

Employment (domestic) 0.7 0.2 0.0

Unemployment rate in % (as classified by the Federal Employment Agency) 25.7 6.0 6.3

USE of GDP in price-adjusted terms (real)

Final consumption expenditure (households and NPISHs) -0.4 0.3 0.5

Government -0.1 2.6 1.5

Machinery and equipment -0.8 -5.5 1.1

Construction -3.4 -3.5 -0.6

Domestic demand -0.4 0.2 1.2

Exports -0.3 -0.8 -0.3

Imports -0.6 0.2 1.9

Net exports (contribution to GDP growth) 30.1 -0.4 -0.9

Inflation rate 5.9 2.2 2.2

Gross wages and salaries per employee 6.4 5.3 2.9

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 21

29. The Federal Government’s detailed projection

can be found in Part II of the Annual Economic

Report.

Current fiscal policy situation: revenue trend

and new EU spending rules

30. The initial fiscal policy situation is character-

ised by the short-term challenges of the ongoing

macroeconomic effects of overlapping crises as

well as the structural challenges facing the Ger-

man economy in the medium and long term and

the associated high macroeconomic investment

requirements along with the need for comprehen-

sive structural reforms.

After the general government’s structural pri-

mary deficit increased significantly to over 2% of

GDP in 2020 and 2021 as a result of the COVID-19

pandemic, it was reduced to around 1% of GDP

in 2022 and 2023. In 2024, the structural primary

deficit declined again to around 0.5% of GDP after

the crisis measures came to an end. The develop-

ment of the financing balance (net borrowing)

is generally reflected in the development of the

Maastricht debt ratio. After rising to around 68%

of GDP in 2020 and 2021, the debt ratio subse-

quently fell again and amounted to around 62.9%

of GDP in 2023. According to the current projec-

tion, it is likely to have risen slightly to around

63 ¼% of GDP in 2024.

Total federal expenditure in 2023 was €457.1 bil-

lion. Expenditure totalling €476.8 billion was

planned for 2024 and €488.6 billion in the gov-

ernment draft for the 2025 federal budget. While

complying with the statutory fiscal rule, the Fede ral

Government prioritised the following in particu-

lar: i) enabling the Growth Initiative, ii) expanding

public investment, iii) investing in external secu-

Interest expenditure Negative cyclical component Current ﬁscal balance Negative one-off effects

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

2018 2019 2020 2021 2022 2023 2024

Structural primary balance

Figure 3: Structural primary balance in relation to nominal potential output

Source: Federal Statistical Ofﬁce, in-house calculations; calculated economic components based on the nominal output gaps according to the Federal Government’s

annual projection for 2025 (January 2025).

22 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

rity, iv) investing in internal security, v) tax and

other relief, vi) ensuring social cohesion, vii) more

and affordable housing, viii) climate and environ-

mental protection, ix) future technologies and

innovation. The share of investment expenditure

rose from 12% in 2023 to 14.8% in 2024 and is set

to increase to 16.6% in 2025. Investment expend-

iture also includes investments in financial assets

as part of so-called financial transactions. An

increase of around €1 billion to around €19.6 bil-

lion is budgeted for these in 2025, compared to the

amount planned in the 2024 federal budget. Net

borrowing in the federal budget was €27.2 billion

in 2023. Net borrowing of €39 billion is estimated

in the 2024 federal budget and net borrowing of

€51.3 billion is planned in the government draft

for 2025.

31. After years during which the German Bunde-

stag had declared an extraordinary emergency sit-

uation (2020 to 2023), the federal budget for 2024

is once again within the regular credit ceiling of

the debt brake. The drafts for the Budget Act 2025

and the federal budget have not been finalised

in the German Bundestag’s Budget Committee.

A new federal government will have to make key

decisions on the 2025 budget. The newly elected

parliament will then decide on this as part of

its budgetary sovereignty. Until the 2025 federal

budget adopted by the German Bundestag has

been promulgated in the Federal Law Gazette,

the Federal Government will essentially work

on the basis of Article 111 of the Basic Law. The

relevant provision for provisional budget man-

agement ensures that the Federal Government

can meet its existing obligations and so fulfil its

tasks. The basis for calculating and managing the

provisional budget for 2025 are the estimates and

budget structures of the government’s draft fed-

eral budget for 2025 of summer 2024, updated

with the so-called resolution recommendations

adopted by the Budget Committee of the German

Bundestag during the parliamentary deliberations

in the autumn of 2024. For most non-person-

nel administrative and programme expenditure,

45% of the planned funds are available from the

start of the provisional budget management if the

requirements of Art. 111 para. 1 of the Basic Law

are met. This quota does not apply to personnel

expenditure and investments.

Due to the aforementioned restrictive provisions

of Art. 111 of the Basic Law, there could, initially,

be a slightly reduced outflow of funds during the

year – compared to an outflow of funds in a year

in which a budget was adopted by law from the

2023 (actual)* 2024 (planned) 2025 (draft)

Federal govt. expenditure in € billion 457.1 476.8 488.6

Yearly change in % -4.9 +3.4 +2.5

Share of investment expenditure in % 12.0 14.8 16.6

Federal govt. revenue in € billion 457.1 476.8 488.6

Tax revenue 356.1 377.6 388.2

Net borrowing 27.2 39.0 51.3

* Without budgetary offsetting

Overview 2: Key federal budget figures

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 23

beginning. However, experience has shown that

any withheld cash outflows are made up for very

quickly when the provisional budget management

comes to an end. It is also assumed that the pro-

visional budget management for 2025 will last at

least until the summer, which means that no sig-

nificant negative growth effects are to be expected

for the year as a whole.

32. The fiscal rules of the reformed European Sta-

bility and Growth Pact (SGP) entered into force

in April 2024. The main fiscal indicator of the

reformed regulatory framework is a binding mul-

ti-year growth path for net primary expenditure

(hereinafter: net expenditure), which is in line

with specific fiscal requirements. Net expendi-

ture is government expenditure excluding inter-

est expenditure and is adjusted for expenditure

on EU programmes that is fully offset by revenue

from the Union funds, national expenditure for

the co-financing of programmes financed by the

EU, cyclical components of expenditure on unem-

ployment benefits and one-off and other tempo-

rary measures as well as discretionary measures

on the revenue side.

33. To derive the fiscal policy requirements for

Member States with a debt level of more than

60% of GDP and/or a deficit of more than 3% of

GDP, three elements in particular are provided for,

which must be fulfilled cumulatively and from

which the European Commission determines ref-

erence paths for net expenditure:

— As part of a sustainability analysis, the expend-

iture path to be determined must ensure that

the projected general government debt ratio is

brought to a plausibly declining path or remains

below 60% of GDP in the medium term and

that the projected general government deficit is

reduced to below the 3% of GDP threshold and

kept below this reference value in the medium

term (Regulation (EU) 2024/1263, Article 6).

— Furthermore, a “debt sustainability safeguard”

with concrete quantitative targets for reducing

the debt ratio is planned. The requirement is

that the projected government debt ratio must

fall by a minimum average annual rate of 1 per-

centage point of GDP as long as the government

debt ratio exceeds 90% of GDP and 0.5 percent-

age points of GDP as long as the government

debt ratio is between 60% and 90% of GDP (Reg-

ulation (EU) 2024/1263, Article 7).

— Finally, a “deficit resilience safeguard” was

anchored in the rules, which provides for an

appropriate safety margin of the deficit to the

3% reference value of 1.5 per cent in structural

terms. The annual improvement in the struc-

tural primary balance to achieve the required

gap is 0.4 percentage points or, if the adjustment

period is extended, 0.25 percentage points (Reg-

ulation (EU) 2024/1263, Article 8).

34. On the basis of these requirements, the

Member States present a general government

net expenditure path for the coming years in

so-called medium-term fiscal-structural plans

(FSPs).These plans are then assessed by the Euro-

pean Commission. For plans that are underpinned

by particularly growth-friendly reforms and

investments, the adjustment period can, upon

request, be extended from four to up to seven

years. Once the plans have been adopted by the

Council, the net expenditure path outlined in the

plans is considered to be a binding fiscal commit-

ment, which will be used to monitor compliance

with the fiscal targets of the reformed Stability

and Growth Pact in the years to come. Any over-

runs of the net expenditure path are recorded in

a so-called control account. If a negative balance

of the control account of 0.3 percentage points

of gross domestic product is exceeded in a single

year or 0.6 percentage points in a cumulative view,

the EU Commission considers initiating an exces-

sive deficit procedure.

24 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

Due to the early elections to the German Bun-

destag on 23 February 2025 and analogous to

the procedure in other Member States, which

have postponed the submission of their FSP due

to upcoming elections or the formation of gov-

ernments, the Federal Government has got the

go-ahead from the European Commission to

extend the submission deadline for the FSP until

the requisite conditions for determining the net

expenditure path have been met.

Climate policy: GHG emissions continuing

to fall

35. The Climate Change Act has provided the

national legal framework for climate action pol-

icy since 2019 and was further tightened in 2021:

greenhouse gases (GHG) must be reduced by at

least 65% by 2030 compared to 1990 levels. In

August 2024, the Federal Government submitted

this year’s Climate Action Report to the Bunde-

stag in accordance with section 10 of the Climate

Change Act. The report provides information on

the implementation status of the climate action

programmes, the sector-specific and cross-sec-

toral climate action contained therein and the

expected greenhouse gas reduction effects. In the

last few years, the Federal Government has taken

decisive steps towards achieving the 2030 climate

target: while a reduction in greenhouse gases of

just 49% by 2030 was projected at the start of the

legislative period, the current projection data

shows a significantly greater reduction in GHG

emissions of almost 64%. This demonstrates that

the overall reduction target of the Federal Cli-

mate Change Act of at least 65% by 2030 is within

reach if progress continues. For emissions from

the scope of the Effort Sharing Regulation, how-

ever, the projection data for the period 2021 to

2030 shows an overshoot of 126 million tonnes of

CO2(eq) compared to the allocations.2

36. Overall, the decoupling of GHG emissions and

economic value creation has accelerated signif-

icantly in recent years. Between 2021 and 2023,

GHG emissions per price-adjusted million euros

of gross domestic product (GDP) were reduced by

34 tonnes. This corresponds to a decoupling rate

of 13% in just two years. The year 2023 thus marks

the strongest decoupling since German reunifi-

cation. On the one hand, this dynamic develop-

ment is due to significant energy efficiency gains

in response to the energy price crisis triggered by

the Russian war of aggression as well as effective

climate protection instruments and progress in

the expansion of renewable energies. On the other

hand, however, it is also characterised by slumps

in production in the energy-intensive industries.

A further decline in GHG emissions is also emerg-

ing for the year that has just ended. Official data

on GHG emissions in 2024 will be published by

the German Environment Agency on 15 March

2025. In order to continue the rate of decoupling

that has recently been observed, further progress

must be made with regard to the first three factors

mentioned above.

Measured against the reduction paths for the

individual sectors in line with Annex 2a of the

amended Climate Change Act, the energy sector

(175 million tonnes of CO2 equivalents) and indus-

try (37 million tonnes of CO2 equivalents) in par-

ticular will exceed their targets in the period from

2021 to 2030. The agriculture and waste manage-

ment sectors (together around 46 million tonnes

of CO2 equivalents) also exceeded their sectoral

2 Cf. The briefing of the Bundestag by the Federal Government: Report on the exceedance of the targets of the European Climate Protection

Regulation as determined by the Council of Experts on Climate Change and statement on possible effects under Article 8 of the European

Climate Protection Regulation of 22 August 2024, Bundestag printed paper 20/12450

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 25

targets. In buildings (minus 32 million tonnes of

CO2 equivalents) and transport (minus 180 million

tonnes of CO2 equivalents), the emission values set

out in the Climate Change Act are expected to be

exceeded in the period from 2021 to 2030.

37. The results of the most recent German Natio-

nal Forest Inventory suggest that the land use,

land use change and forestry (LULUCF) sector will

fall well short of the target of an average annual

net negative emission of 25 million tonnes of CO2

equivalents in 2027-30, as set out separately in

Section 3a Climate Change Act, according to the

projection data for 2024.

38. There is, however, still a need for action in all

sectors. Moreover, there is further pressure to act

with regard to Germany’s European climate action

obligations. Here, the 2024 projection data shows

a target gap of 126 million tonnes by 2030, in line

with the requirements of the EU Effort Sharing

Regulation (ESR). In order to stabilise the current

GHG reductions and increase the speed of trans-

formation, further ambitious measures and the

ongoing monitoring of target achievement are,

therefore, still necessary.

39. The EU Emissions Trading Scheme I (EU ETS 1)

is used to trade allowances for stationary electric-

ity and heat generation plants, energy-intensive

industry, intra-European aviation and maritime

transport. The EU ETS 1 currently covers around

40% of total EU emissions (cf. AER 2024, Item 9).

Following a continuous rise in certificate prices

since 2020, the price fell from a level of almost

€100 per tonne of CO2 equivalents in March 2023

to around €60 to €70 per tonne of CO2 equivalents

in the course of 2024. The drop in the price is due,

in particular, to lower demand from fossil fuel

producers and energy-intensive industries. The

reason for the low demand for CO2 certificates

was lower overall power generation from fos-

Emissions, EUA Future – Daily Future, 1st Position, Settlement Price, EUR

100

Sep. 15

Dec. 15

Mar. 16

Jun. 16

Sep. 16

Dec. 16

Mar. 17

Jun. 17

Sep. 17

Dec. 17

Mar. 18

Jun. 18

Sep. 18

Dec. 18

Mar. 19

Jun. 19

Sep. 19

Dec. 19

Mar. 20

Jun. 20

Sep. 20

Dec. 20

Mar. 21

Jun. 21

Sep. 21

Dec. 21

Mar. 22

Jun. 22

Sep. 22

Dec. 22

Mar. 23

Jun. 23

Sep. 23

Dec. 23

Mar. 24

Jun. 24

Sep. 24

Dec. 24

Figure 4: The price of CO2 in the EU Emissions Trading Scheme I

Source: Macrobond.

26 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

sil-fuelled power plants as a result of the increased

supply of renewable energies, lower demand for

electricity due to the economic situation, and

lower gas prices compared to 2023. A slight rise in

the supply of certificates in the period from July

2023 to 2026 compared to planning due to the

bringing forward of auctions to finance RePow-

erEU projects may also have influenced the price

decline. Due to the decreasing cap on allowances,

CO2 prices in the EU ETS 1 are expected to trend

upwards in the years to come.

Besides extensive changes made to the existing

emissions trading system (EU ETS 1), the Fit-for-55

package also decided to introduce a new emissions

trading system for fuels (buildings, road transport

and small industrial facilities not subject to EU ETS

1) in the EU (EU ETS 2). As a result, 75% of the EU’s

total CO2 emissions will be covered by an emissions

trading system (EU ETS 1 or EU ETS 2) as of 2027

(cf. AER 2024, Item 9). The reforms to the EU Emis-

sions Trading System will be implemented in

national law through comprehensive amendments

to the Greenhouse Gas Emissions Trading Act and

the Fuel Emissions Trading Act.

40. In addition to national and European decar-

bonisation measures, climate protection ambi-

tions must be bolstered internationally, too. The

Federal Government is making a significant con-

tribution to this by means of international nego-

tiations, initiatives and over 40 bilateral partner-

ships on climate and energy worldwide (cf. Box 5).

Welfare measurement: a broader perspective

on well-being and convergence processes in

society

41. The mobility of people and goods is of cen-

tral importance for the prosperity of society as

a whole. However, other aspects are relevant to

achieve the goal of increasing welfare. Besides

looking at traditional macroeconomic indicators,

such as gross domestic product, the Federal Gov-

ernment has, therefore, broadened its perspective

in the Annual Economic Report (AER) and has

been systematically examining other aspects of

overall social welfare since 2022. This also reflects

the political guiding principle of a socio-ecologi-

cal market economy in the sense of an economic

order that is not only geared towards material

prosperity and, above all, sustainability. For the

first time in the 20th legislative period, the Federal

Government also took a comprehensive look at

regional aspects of welfare at the level of districts

and independent cities in the Equivalence Report

(cf. Box 3).

42. The indicators in various areas show a broader

picture overall. Key indicators of current eco-

nomic development reflect the current challeng-

ing cyclical and structural situation.

43. Indicators that represent the future develop-

ment potential of the economy, e.g. with regard to

demographic change and the shortage of skilled

labour, do not show a uniform trend: for example,

the employment rate has recently increased fur-

ther, while, at the same time, a low potential for

skilled labour can be observed, particularly in the

area of education and training; this is partly due

to a high proportion of young people who have

not completed any vocational training or who

do not have a university entrance qualification,

as well as to an overall decline in the innovation

potential of the German economy. Furthermore,

the development of gross fixed capital formation

is restrained overall in view of the current high

investment requirements, particularly in the pri-

vate sector. Public investment, on the other hand,

has increased while the tax rate has recently fallen

noticeably.

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 27

44. In the field of social justice and participa-

tion, the ever-increasing proportion of women

in management positions should be emphasised

positively as regards gender equality. However,

the pay gap between women and men, which has

been stagnating for some years now, as well as a

sideways movement in early childhood care, also

point to a differentiated picture in these areas.

45. There is a clearly positive trend with regard to

the progress made by the energy transition and

the associated contribution to lower greenhouse

gas emissions. On the other hand, other indica-

tors in the field of environmental protection and

nature conservation still reveal insufficient or

levelling off trends in the desired direction. Only

if ecological limits are observed can a prosperous

economy be maintained in the long term and thus

the prosperity of current and future generations

be secured. A detailed analysis of the welfare indi-

cators can be found in Chapter D of this Annual

Economic Report.

Box 3: Equivalent standards of living

The Federal Government is expressly committed to the task of promoting and maintaining equal living condi-

tions throughout Germany. The Federal Government’s Equivalence Report “For Strong and Liveable Regions in

Germany”, published for the first time in 2024, contains a broad-based analysis of the status and development

of living conditions in Germany at the level of all 400 districts and independent cities on the basis of a large

number of indicators and the results of a specially conducted population survey. It also presents the meas-

ures taken by the Federal Government to boost equal living conditions. Convergence between the regions of

Germany is observed for the majority of the indicators analysed in the report. For example, progress has been

made in bringing the regions closer together in terms of economic performance, the unemployment rate, life

expectancy and in the field of medical care and all-day care.

This trend towards convergence also correlates with similar analyses conducted internationally. According

to the OECD (Regional Outlook 2023), Germany belongs to the small group of countries with comparatively

strong economies in which regional inequalities are relatively low and have decreased over time.

In the 20th legislative period, the Federal Government has significantly developed regional structural policy

with the aim of strengthening equal living conditions in Germany. Corresponding measures are described in

detail in the Equivalence Report and also in previous annual economic reports.

28 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

friendliness, but, above all, on affordability, taking

performance into account. Against the backdrop

of limited fiscal leeway, public funds to support

private households should be targeted as specifi-

cally as possible at those who are unable to switch

to climate-neutral alternatives on their own. In

the future, support programmes should, therefore,

be targeted primarily at particularly vulnerable

households. Public-interest companies and social

innovations that focus their corporate purpose on

solving social challenges also benefit from numer-

ous measures to improve the legal and funding

policy framework.

48. The Federal Government’s economic policy

measures and the necessary development paths

can be summarised along the ten fields of action

listed in the following sub-chapters. Following a

brief description of the initial situation, objectives

and the most important reforms of the recent

past, the measures that the Federal Government

has implemented in 2024 or that will come into

force in 2025 are then presented in a table. Finally,

the Federal Government’s statements on the

annual report of the Expert Council on Integra-

tion and Migration (GCEE) are presented in the-

matically related fields of action.

C.1 Investments: creating better

framework conditions, boosting public

investment

49. To ensure that Germany remains a highly pro-

ductive, innovative and generally competitive

location and can so fulfil the promise of prosper-

ity of the social market economy and remain a

leading economic nation, a significantly stronger

investment dynamic is required. This applies all

the more in view of the need for a successful tran-

sition towards a climate-neutral economy. The

majority of this additional investment must come

from the private sector, which generally accounts

C. Ten fields of action for new

economic dynamism

46. In view of the major structural challenges, the

Federal Government has already identified ten

fields of action for a comprehensive and targeted

supply policy in its Annual Economic Report 2024.

The Federal Government has prioritised improved

investment conditions, further cuts in bureau-

cracy, an innovation-friendly environment, the

strengthening of employment incentives, an effi-

cient capital market and the dynamic expansion

of the supply of renewable energies and affordable

housing. For future prosperity, it is also essential

that Germany remains a strong industrial loca-

tion by means of improved framework conditions,

also in order to retain the many well-qualified

and well-paid jobs. Thus, economic policy aims

to increase competitiveness and also specifically

supports the transformation of the economy: it

sets the framework for a secure, cost-effective and

climate-neutral energy supply, drives forward

the further decarbonisation and modernisation

of the economy and ensures sustainable mobility

options through an efficient transport infrastruc-

ture. Due to the prolonged adverse effects on the

demand side, as reflected, among other things, in

economic underutilisation and a negative out-

put gap, targeted demand-side measures are also

taken into account

47. The Federal Government is also focusing on

social and distribution policy issues in the inter-

ests of a modern supply-side policy. It recognises

that a wide range of factors – over and above

GDP – influence the material and non-material

well-being of citizens (cf. Item 41) and Chap-

ter D). Accordingly, many of the fields of action

include measures that take distributional effects

into account. For example, in the case of the con-

struction of new housing and energy-efficient

refurbishment, the focus is not only on climate

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 29

for around 90% of all investment. In Germany, the

nominal share of gross fixed capital formation,

i.e. investment excluding depreciation, in GDP in

2024 was just under 21% (cf. also Figure 5). This

share has increased somewhat in recent years and

has recently approached the highs seen around

the turn of the millennium. At the same time,

price-adjusted private gross fixed capital forma-

tion in 2024 was still 7.8% below the 2019 level. At

2.9% of GDP, government gross fixed capital for-

mation in 2024 was above the pre-crisis level and

is expected to rise to around 3.3% of GDP in 2025.

This means that the ratio in Germany is below

the EU average, which is, however, also character-

ised by many catching-up economies with higher

investment requirements in the convergence pro-

cess as well as structural differences in terms of

public and private organisation, particularly with

regard to infrastructure. Even against the back-

ground of an often inadequate level of invest-

ment in the past, particularly in key areas such as

infrastructure, there is an opportunity to provide

important stimulus for growth and modernisa-

tion by ramping up private and public investment

activity. To eliminate the investment backlog in

rail infrastructure, for example, the Federal Gov-

ernment has, therefore, decided to carry out the

general refurbishment of 40 high-performance

corridors. The figure also shows that the growth

in the overall economic investment ratio over the

past decade is primarily due to an increase in con-

struction investment, in addition to higher public

investment. The share of private investment in

equipment, which primarily includes machinery,

equipment and vehicles, has fallen in line with

the trend since German reunification. The share

of other investments (R&D, intellectual property,

software, etc.) has experienced a downward trend

Investment rate, total

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

Construction investment Machinery and equipment investment Other ﬁxed capital formation

Gross ﬁxed capital formation of government

Percent

Figure 5: Development of gross fixed capital formation as a percentage of GDP (nominal)

Source: Federal Statistical Ofﬁce, in-house calculations 2024 Provisional ﬁgures. Last updated: January 2025.

30 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

since 2019. However, the different price develop-

ments must also be taken into account when ana-

lysing the investment ratios.3

In light of the major challenges in the context of

modernising the capital stock and boosting the

growth potential of the German economy, there is

a need to increase investment momentum above

and beyond the developments of recent years as

described above.

50. To this end, the Federal Government will take

a number of measures to improve the policy envi-

ronment for private-sector investment, especially

in research and development, and will make its

funding policy more efficient.

With the Growth Opportunities Act, the Federal

Government has improved the framework con-

ditions for investment and innovation. The total

volume of relief amounts to around €3.2 billion

and is mainly the result of temporary improve-

ments to depreciation conditions, including in

residential construction, the expansion of the

research allowance and a temporary increase

in the loss carryforward to 70%, as well as other

measures to reduce bureaucracy. The relief meas-

ures, which were mainly intended to improve the

liquidity of the companies, came into force imme-

diately after the legislative package was passed. In

the second half of 2024, the Federal Government

adopted additional, far-reaching measures to

boost private investment with its Growth Initi-

ative, but the majority of these could not be put

into practice due to the premature end of the leg-

islative period. In particular, a further improve-

ment in depreciation conditions in the form of an

extension of declining balance depreciation until

2028 with a depreciation rate of 25% was planned.

In doing so, the Federal Government was follow-

ing the scientific evidence that shows that accel-

erated depreciation options have proven to be a

particularly effective instrument for incentivis-

ing investments with low fiscal costs. Non-profit

instruments, such as an investment premium,

are likely to have a stronger effect on investment

activity in some cases – albeit at a higher fiscal

cost – since young companies without profits

would also benefit from this, for example.

In the interest of speeding up the transition

towards climate neutrality whilst also strength-

ening the German economy’s growth potential,

the Federal Government is also promoting invest-

ments in the fields of climate action, the energy

transition, mobility, and digitisation. The meas-

ures financed by the Climate and Transformation

Fund (CTF) contribute to this. The CTF is Germa-

ny’s central public-sector financing instrument

for measures that will allow Germany to attain its

climate targets. This primarily promotes private

investments designed to reduce CO2 emissions.

The CTF is funded from the revenues from Euro-

pean and national emissions trading.

3 In the case of investment in plant and equipment, the dwindling share is accompanied by a decline in price-adjusted development, while the

nominal shares of investment in construction in the private sector and other machinery and equipment have remained roughly constant since

2020. However, the price-adjusted development since then has been very different (other investments: +24.6%, construction investments:

-14.5%). This shows that the nominal investment ratios can partially overlap the real development (as of January 2025, based on preliminary

results for 2024).

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 31

1. Growth Opportunities Act

The Growth Opportunities Act supports the modernisation and transformation to a digital and climate-neutral

economy. It contains the following measures, among others:

• Expansion and extension of tax incentives for research

• Improvements to the retention tax benefit

• Improvements to the corporate income tax option

• Improved depreciation options, e.g. in the residential construction sector

• Extension of the loss carryforward

The Act entered into force on 28 March 2024.

2. Tax Reform Act, in particular equalisation of bracket creep (Growth Initiative (GI) Measure No. 3)

Bracket creep will be offset by adjusting the income tax rate for 2025 and 2026. The Tax Reform Act contains the

following measures:

• Increase in the basic allowance integrated into the income tax rate

for the 2025 assessment period: €12,096

as of the 2026 assessment period: €12,348

• Increase in the tax-free allowance for children

for the 2025 assessment period to €9,600 (incl. care, education, training needs allowance)

as of the 2026 assessment period to €9,756 (incl. care, education, training needs allowance)

• Increase in child benefit

with effect from 1 January 2025 by €5 to €255 per child per month and

with effect from 1 January 2026 by a further €4 to €259 per child per month

• Shift in the benchmark values of the income tax rate (equalisation of so-called “bracket creep”)

in 2025 by 2.6%

in 2026 by 2.0%

• Increase in the immediate supplement in Social Code II, Social Code XII, Social Code XIV, Asylum Seekers’

Benefits Act and Federal Child Benefit Act from €20 to €25 per month as of January 2025

• Increase in the exemption limits for the solidarity surcharge for the 2025 and 2026 assessment periods

Overall, the adjustments to the income tax rate in 2025/2026 and higher family benefits will relieve taxpayers by

around €13.7 billion in full annual effect. The Tax Reform Act of 23 December 2024 thus contains both changes

that will come into force on 1 January 2025 and changes that will come into force on 1 January 2026

3. Realignment of the European Structural Funds

In the 2021-2027 funding period, Germany will receive around €21 billion from the European Structural and

Investment Funds; this will be supplemented by national co-financing of around the same amount. For the

future of cohesion policy, the Federal Government and the federal states drew up a joint statement in 2024 for

coordination with the EU institutions and Member States, which focuses on five areas of action: focusing the

European Structural Funds on competitiveness and transformation, linking them to structural reforms, simpli-

→

32 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

Statement by the Federal Government

on Chapter 2 “Strengthening the Future-

Orientation of Public Finances” of the

Annual Report of the Expert Council on

Integration and Migration (GCEE)

51. The GCEE confirms that there is great need

for public investment due to years of insufficient

future-oriented public spending. The reason for

this is, not least, the politically motivated ten-

dency to favour present-oriented expenditure at

the expense of future-oriented expenditure or

public investment (“anti-investment bias”). While

the constitutional debt brake successfully coun-

teracts the tendency to postpone any necessary

tax increases or spending cuts into the future due

to budget deficits (“deficit bias”), there is a risk,

particularly in phases of economic weakness,

that consolidation will take place at the dispro-

portionate expense of future-oriented spending.

Against this backdrop, the GCEE discusses options

for action that would facilitate expenditure pri-

oritisation, secure and stabilise future-oriented

expenditure, and expand the scope for future-ori-

ented expenditure. The proposal for a transport

infrastructure fund is discussed in Chapter C.10.

52. In the interests of evidence-based expenditure

prioritisation, the GCEE proposes, among other

things, the systematic use of cost-benefit analyses

as a basis for making decisions on future-oriented

expenditure (cf. Annual Report Items 139 et seq.).

The Federal Government shares the view that

(ex-ante) cost-benefit analyses, which apply a

transparent methodology and are scientifically

sound, can support the prioritisation of future

expenditure and a stronger evidence base for

political decisions. It is already being used in

selected areas (federal transport infrastructure

planning, cf. GCEE Annual Report Item 139). The

existing regulatory impact assessment falls short

of the approach proposed by the GCEE, but it also

requires significantly fewer resources. Conducting

such cost-benefit analyses requires a great deal

of planning and expense and is particularly chal-

lenging in the public sector with its very hetero-

geneous areas of expenditure, but could contrib-

ute to prioritisation. As part of the current 12th

Spending Review, the Federal Government is also

considering standard indicators, for example, to

improve target- and impact-oriented budget man-

agement.

fication, interregional cooperation and strengthening the impact of investments for more regional growth. In

2025, the European Commission will submit a new proposal for the Multiannual Financial Framework from 2028

onwards and for a new legislative package on the European Structural Funds.

4. The German Recovery and Resilience Plan

The funds from the Recovery and Resilience Facility are intended to strengthen the EU’s resilience and future

viability and, in particular, foster the green and digital transitions. Germany submitted the second and third

payment applications as a joint application on 13 September 2024. The volume of the application amounted

to €13.5 billion. The EU Commission and the EU Member States endorsed a positive assessment of Germany’s

application. The payment was disbursed on 23 December 2024. The reforms and investments carried out will

benefit citizens and companies in areas such as the digitalisation of public administration, healthcare, educa-

tion and training, renewable energies and the modernisation of transport infrastructure and housing. The areas

funded also include research and innovation for ecological change as well as microelectronics and communica-

tion technologies.

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 33

53. To counteract politicians’ preference for the

present and to secure and stabilise future-ori-

ented expenditure, the GCEE proposes intro-

ducing statutory minimum quotas for certain

areas of expenditure (specifically, for example, a

statutory stipulation of the 2% target for defence

expenditure and a quota at individual state level

for expenditure in the area of education, cf. GCEE

Annual Report Items 178 et seq.) A quota in the

education sector could, for example, be based on

minimum expenditure per pupil and could be

Länder-specific in the light of regionally varying

costs and the federal states being the primary cost

bearer. The Federal Government is also expected

to play a coordinating role here.

The Federal Government shares the view that

future-oriented expenditure must be prioritised

– not least against the backdrop of demographic

change and rising expenditure requirements in

social insurance. In the case of statutory quotas,

there is a fundamental risk that the appropriate-

ness of measures as regards content will take a

back seat. Such a commitment on the part of pol-

iticians would also further restrict the budgetary

legislator’s room for manoeuvre. According to Art.

104c of the Basic Law, the Federal Government

can provide its Länder with temporary financial

assistance to boost the efficiency of their munici-

pal education infrastructure. Only investments in

property, plant and equipment and special tem-

porary expenditure directly related to these can

be subsidised. Use has been made of this option,

for example through the Digital Pact for Schools

or the expansion of all-day child care for primary

school children, but without intruding on the

primary responsibility of the Länder. In contrast

to minimum quotas, this enables a needs-based

increase in future-oriented expenditure in the

education sector. Regardless of these fundamental

considerations, the Federal Government is fully

committed to the obligation agreed by the heads

of state and government at the NATO summit in

Vilnius in 2023 to permanently spend at least 2%

of gross domestic product for defence purposes.

Following on from the recommendations for a

pragmatic and stability-oriented reform of the

debt brake from the first “Policy Brief” as of the

spring of 2024, besides the above recommenda-

tions, the GCEE again advocates in its current

annual report expanding the scope for future-ori-

ented expenditure. For example, the flexibility of

the debt brake could be increased by introducing

a transitional phase in the years immediately fol-

lowing the application of the debt brake’s excep-

tion clause as well as by staggering the regular

limit for the Federal Government’s structural net

borrowing depending on the general govern-

ment debt ratio (cf. GCEE Annual Report Items

170–173). Moreover, the GCEE proposes making

greater use of ex-post analyses (such as the exist-

ing spending reviews, cf. GCEE Annual Report

Item 168) and sunset clauses (cf. Annual Report

Item 169) so as to expand fiscal leeway in this

way. Spending reviews should be based more

on cost-benefit analyses and the sunset clauses

should help ensure that new funding programmes

and subsidies, in particular tax concessions, are

only approved for a limited period of time in the

future and are subject to mandatory evaluation.

To increase the growth potential of the German

economy, strengthening public and private invest-

ment is of crucial importance in terms of financial

and economic policy, ultimately also in order to

strengthen the sustainability of public finances.

There are various ways in which the requisite

increase in future-orientated expenditure can be

achieved. The Federal Government agrees that the

approaches outlined might be suitable in principle

and agrees with the GCEE’s discussion of the pro-

posals. A transitional phase following exceptional

emergencies could allow public deficits to be

gradually reduced after crises with comprehensive

stabilisation and relief measures. This is all the

34 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

more true the greater the need for discretionary

fiscal action in the crisis, since the restrictive fis-

cal stimulus required without a transition phase

is greater. As a result, there is an increased risk of

consolidation after crises that is not in line with

the economic cycle. Increasing the upper limit for

structural net borrowing, which is currently com-

paratively restrictive at 0.35% of nominal GDP,

could be another starting point for a reform that

can be made compatible with the premise of sus-

tainable public finances. The reform approach of

directly privileging net public investments via a

so-called “golden rule” would have to clarify dif-

ficult definitional issues relating to public invest-

ments and the quantification of depreciation.

Besides the complex integration into the budget

preparation process, the risk of a rise in consump-

tive expenditure would also have to be taken into

account – depending on the design – since the

exemption of (net) investments from the regular

credit ceiling for other categories of expenditure

would create corresponding scope for manoeuvre.

The use of any resulting fiscal policy leeway for

future-oriented expenditure and additional meas-

ures to boost growth is crucial if an increase in

the general government debt ratio is to be coun-

teracted in the long term. In the process, compli-

ance with the reformed Stability and Growth Pact

must be ensured. The aforementioned starting

points for such a reform of the debt brake require

a constitutional majority to amend the Basic Law.

Moreover, the accuracy of government spending

could be indirectly increased by further improving

the capital accounts.

The current 12th Spending Review on the topic of

“Implementation of recommendations on target

and impact orientation in the federal budget” con-

tinues the work of the 11th Spending Review cited

in the report. It also deals with standard indica-

tors for goal-oriented and impact-oriented budget

management. Overall, the focus should be on the

results and effects of the policy – and not on the

resources used. However, this is in conflict with

the “minimum quotas” advocated by the GCEE

and the associated input orientation (cf. the GCEE

Annual Report Item 143 et seq.).

The Federal Government’s subsidy policy guide-

lines comprise, among other things, the Federal

Government’s voluntary commitment to grant

subsidies only if they represent the most efficient

instrument, also from a cost-benefit perspec-

tive, to grant new subsidies primarily as financial

assistance and to finance them through savings

elsewhere, to provide financial assistance only

for a limited period of time and, in principle, on a

degressive basis, and to carry out regular evalua-

tion cycles. Just under 80% of the financial aid in

the 29th Subsidies Report of the Federal Govern-

ment is temporary. In the case of tax concessions,

which are always founded on a statutory basis, a

comparatively small number (15 out of 108) are

time-barred.

C.2 Regulation: driving forward the

reduction of bureaucracy, boosting

competition

54. For fresh economic dynamism in Germany

and Europe, a strengthening of productivity

growth is particularly necessary. In times of a

shortage of skilled labour, economic policy should

focus all the more on conserving scarce resources

in companies and the administration, thus freeing

up capacities for creativity, innovation and activ-

ities that foster growth. While it is true that the

level of legal certainty and the quality of admin-

istration in Germany continue to be a locational

advantage, the bureaucratic burden that has

grown over the years along with the high level of

regulation have now become a serious obstacle to

investment. This poses challenges for small and

medium-sized companies in particular, since it is

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 35

often uneconomical for them to hire additional

staff to deal with bureaucratic obligations. The

Federal Government has, therefore, prioritised the

reduction of unnecessary bureaucracy.

55. In the summer of 2023, the Federal Govern-

ment thus launched and systematically imple-

mented the so-called “Meseberg relief package”

aimed at cutting bureaucracy. The measures in this

package will reduce the burden on the economy

by a good €3.5 billion a year. The package includes

measures to promote digitalisation, reduce noti-

fication and reporting obligations as well as addi-

tional simplifications to procedures and amend-

ments to the law. The main components of the

package are bureaucracy relief through the Growth

Opportunities Act (€1.4 billion annual relief vol-

ume for the economy), the Bureaucracy Relief Act

IV (€910 million annual relief volume for the econ-

omy), the associated Bureaucracy Relief Ordinance

(around €420 million annual relief volume for the

economy) and the increase in the threshold values

for accounting and financial reporting (€650 mil-

lion annual relief volume for the economy).

56. The Federal Government has also significantly

accelerated planning and authorisation proce-

dures. In November 2023, the Federal Government

and those of the Länder jointly agreed on the “Pact

for Accelerating Planning, Approval and Imple-

mentation”. In doing so, they have brought about

the conditions required for housing construction,

mobile phone expansion and the modernisation

of roads, railways, bridges, renewable energies and

electricity grids to be completed more easily and

quickly. The pact, which has already been largely

implemented, simplifies procedures, shortens

deadlines, modernises the law and reduces indi-

vidual review steps in approval procedures. Digital

solutions should help make processes faster and

more efficient in future. The Federal Government

and the Länder have established a permanent dia-

logue to assist with implementing these agree-

ments. The effectiveness of the acceleration meas-

ures introduced in each case is being constantly

evaluated and supplemented or adapted as nec-

essary. As of November 2024, the Federal Govern-

ment and the Länder have already completed 38%

of all mandates contained in the pact. A further

45% of the mandates are currently being imple-

mented.

57. The Federal Government is also addressing

the burdens that arise for the economy from EU

law. According to the Regulatory Control Council,

over 70% of the current burdens on the economy

since 2015 can be attributed to the implementa-

tion of EU directives. At the same time, around

20% of the current relief can also be attributed to

the implementation of EU directives. The Federal

Government is strongly in favour of reducing and

simplifying EU statutory requirements. Common

rules are central to the functioning of the internal

market and the achievement of common Euro-

pean goals. However, the rules must be simpler,

easier to apply and be coherent and consistent

with each other, and greater attention must be

paid to the proportionality of the requirements,

especially with regard to reporting obligations,

so that the requirements are reduced without the

objectives of the regulation being weakened in the

process. The Franco-German initiative to reduce

red tape at EU level has provided the initial major

impetus for cutting bureaucracy. Simplification

is also one of the core topics of the new EU Com-

mission, which assumed office on 1 December.

Among other things, the European Commission

is increasingly addressing the topic in its “Politi-

cal Guidelines of 18 July 2024” and in the “Mission

Letter” for the Commissioner for Economy and

Productivity, Implementation and Simplification.

58. To achieve a noticeable reduction in bureau-

cracy, it is not enough merely to make selective

36 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

adjustments to individual laws. Rather, what is

required is a holistic approach that takes particu-

lar account of the interactions between the var-

ious regulations. That is why, in this legislative

period, the Federal Government has tackled the

further development of the Better Regulation

methodology and has, with its so-called “reality

checks”, introduced an instrument that takes a

closer look at the addressees and the implemen-

tation of the regulation. In the “reality checks”,

companies, administrations and other experts

exchange ideas in workshops and jointly iden-

tify bureaucratic obstacles and possible solu-

tions based on specific case constellations. This

approach is already paying off. The process has

already been successfully piloted with the reality

check “Installation and operation of photovoltaic

systems” and the majority of the obstacles identi-

fied have already been removed, including those

in the solar package. As part of the implementa-

tion of the Growth Initiative, the dfederal minis-

tries are now carrying out more reality checks.

59. As the current annual report of the National

Regulatory Control Council demonstrates, it has

been possible to stop the trend towards bureau-

cracy in the economy in recent years: In the

reporting period (July 2023 to June 2024) of the

annual report of the National Regulatory Control

Council, compliance costs were reduced by more

than €400 million. With the aim of consistently

relieving the economy of unnecessary red tape,

the Federal Government has adopted further con-

crete and systematic measures to reduce bureau-

cracy with its Growth Initiative. As the current

annual report of the National Regulatory Control

Council also states, these are suitable for initiating

a real turnaround in the reduction of bureaucracy.

The National Regulatory Control Council empha-

sises in a particularly positive light the fact that

the instrument of reality checks is being rolled out

to all departments. When implementing European

directives, the Federal Government is generally

aiming for a literal implementation with a mini-

mum of bureaucracy. A ministerial letter was also

sent to the European Commission advocating a

significant reduction in the very extensive sus-

tainability reporting requirements under the Cor-

porate Sustainability Reporting Directive (CSRD).

Although the CSRD initially affects large compa-

nies, the transfer of reporting obligations along

the value chain also places burdens on SMEs that

are not required to report. To make it easier for

companies to report in accordance with the CSRD,

the Federal Government is funding the further

development of the German Sustainability Code,

a free digital support tool for companies.

60. In addition to cutting red tape, function-

ing competition plays a key role in dynamic and

innovation-driven economic development and

affordable prices. This is why, in this legislative

period, the Federal Government closed gaps in

antitrust law with the 11th amendment to the Act

against Restraints of Competition, which came

into force at the end of 2023, thereby strengthen-

ing the comprehensive enforcement of the princi-

ple of competition. In particular, the powers of the

Federal Cartel Office have been extended follow-

ing a sector inquiry. In the future, the authority

will be able to take targeted measures to remedy

significant and continuing malfunctioning of

competition, whereas previously such malfunc-

tioning was only recorded in a report. For exam-

ple, it will now be much easier for new competi-

tors to enter the market and tacit collusion to the

detriment of consumers can be prevented more

effectively. Moreover, there are further proposals

for changes to competition law to simplify and

speed up procedures, which could not be imple-

mented in this legislative period but have already

been fully developed. At the European level, the

Federal Government is committed to modernising

EU competition law. The core concern is a reform

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 37

and more targeted and to take greater account of

competitiveness and security aspects in the proce-

dures.

of EU merger control. To this end, the Federal

Government has submitted numerous concrete

proposals to make the instrument more effective

REDUCING RED TAPE

5. Increased use of reality checks (GI measure No. 12 c)

The instrument of reality checks is increasingly being used to identify possible measures to cut bureaucracy,

which can then be taken up by the regulatory authorities. An interdepartmental working group has been set up

to coordinate matters, with the Federal Ministry for Economic Affairs and Climate Action (BMWK) taking the

lead.

6. Public procurement transformation package (GI measure no. 18)

The comprehensive reform of national public procurement law will reduce administrative and business com-

pliance costs by more than €1.3 billion a year. Public procurement will be modernised and made more strate-

gic, the consideration of sustainability will become more binding and SMEs, and innovation and startups will be

strengthened.

Following the cabinet’s approval of the draft bill on 27 November 2024, the public procurement transformation

package could come into force by mid-2025 if it is passed by the Bundestag and Bundesrat in January and Feb-

ruary 2025.

As of 1 January 2025, the Federal Government has already temporarily increased the direct order value limit for

federal awarding authorities to €15,000. This will lead to a significant reduction in bureaucracy.

7. Fourth Bureaucracy Relief Act (BEG IV) and associated Bureaucracy Relief Ordinance (BEV)

The BEG IV and the associated BEV relieve the economy of unnecessary bureaucratic obligations to the tune

of roughly €1.3 billion a year. For example, retention periods for accounting documents will be shortened, the

obligation to register in hotels for residents of Germany will be abolished, and thresholds for statistical report-

ing obligations in capital and payment transactions raised.

The BEG IV was promulgated on 29 October 2024. The BEV was promulgated on 13 December 2024. A large part

of the provisions of the BEG IV and the BEV came into force at the beginning of 2025.

8. German Sustainability Code

In order to reduce the workload for companies with regard to sustainability reporting, the Federal Government

is funding the further development of the German Sustainability Code.

The Sustainability Code is a digital support tool that firms can use to draw up their sustainability reports, easily

and free of charge. The enhanced Code reflects the new legal requirements for sustainability reporting (in par-

ticular CSRD), provides companies with an overview of their existing reporting obligations, guides them step by

step through the reporting process and makes the reports accessible to the public. The enhanced Sustainability

Code will be made available to companies during the first three months of 2025.

→

38 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

REGULATION AND COMPETITION

9. Amendment of the Postal Act

The revision of postal law by means of the Postal Legislation Modernisation Act, which came into force in July

2024, has created a modern legal framework for the postal sector. Increasing digitalisation has significantly

changed market conditions and customer needs. The new law will continue to ensure adequate nationwide cov-

erage in the future, take account of digital progress, promote fair competition, good working conditions and sus-

tainable postal services as well as strengthen supervision by the Federal Network Agency (BNetzA).

10. German Digital Services Act (DDG)

In force since 14 May 2024, it determines who enforces the Digital Services Act (DSA Regulation (EU) 2022/2065)

in Germany. With the Coordination Centre for Digital Services at the Federal Network Agency, the DDG is bring-

ing about the conditions for effective platform supervision, which enforces the DSA for German services and

supports the European Commission in proceedings against very large platforms and search engines.

Box 4: National Strategy for Social Innovations and Social Enterprises

Social innovations and social enterprises make a key contribution to overcoming the challenges that exist in

our society. They address societal needs and can also generate economic benefits for the public sector. At the

same time, non-profit enterprises are an important economic force, generating employment and growth.

In an effort to strengthen their impact, the Federal Government adopted the National Strategy for Social

Innovations and Social Enterprises in September 2023, a strategy developed jointly by various ministries.

Currently, 80% of the 70 measures contained therein are being successfully implemented or have already

been completed.

For example, the “Sustainable effect – promoting common good-oriented companies” funding programme

was launched in August 2024; it will promote support, information and networking services for non-profit

companies working for the common good until 2028. Furthermore, the group of applicants for the ERP Start-

Geld startup loan has been expanded so that all non-profit enterprises can benefit from the favourable inter-

est conditions, regardless of their corporate tax liability.

In addition, the platform for social innovations and social enterprises working for the common good was

established at sigu-plattform.de; it acts as the first point of contact for researching, developing and imple-

menting social innovations. As part of the new “‘Social Impact Republic” initiative, the aim is to get people

interested in founding a company that is interested in issues that are orientated towards the common good.

Existing services offered by the participating startup centres will be expanded for impact startups and the

development of technological innovations with a social impact will receive support.

The Micro-Mezzanine Fund III and the opening of the INVEST programme for mezzanine financing and

non-exit-oriented companies are intended to specifically address the financing needs of firms oriented

towards the common good. In addition, €200 million has been earmarked for investments by KfW Capital in

impact funds as part of the Future Fund.

The new not-for-profit housing companies support scheme is also part of the strategy (cf. Item 102).

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 39

C. 3 Employment: expanding employ-

ment incentives, increasing labour

productivity

61. On the whole, the labour market is relatively

robust, although the economic stagnation of the

last two years is also having an impact here. At 6%,

the unemployment rate in December 2024 was

higher than at the end of 2023, and the number of

job vacancies is waning. The IAB Labour Market

Barometer recently recorded declines. At the same

time, however, the number of people in employ-

ment in Germany is at a very high level (46.3 mil-

lion in November 2024) and youth unemploy-

ment remains the lowest in the EU (albeit with

an upward trend). While there were around four

unemployed persons for every vacancy in 2013,

there are currently two (cf. Figure 6). The demo-

graphic trend in particular will become even more

apparent in the years to come as baby boomers

retire from the labour market. In particularly

structurally weak regions, the forecast decline in

the population up to 2045 may exacerbate the bot-

tlenecks in the labour market. The relatively weak

development of labour productivity in an inter-

national comparison also poses a challenge and is

hindering economic growth (cf. Item 5).

62. In view of demographic ageing, working

hours are a key factor in preventing any further

worsening of the shortage of skilled labour in

the future. Although the number of people in

employment today is around 15% higher than

in the early 2000s, the volume of work has not

risen to the same extent. The significant rise

in employment among women has more than

compensated for the drop in the total volume of

work among employed men. On average, how-

Germany Western Germany Eastern Germany

Ratio of unemployed persons to job vacancies

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020** 2021 2022 2023*** 2024*

* Extrapolation on basis of provisional ﬁgures; ** Data correction on 9 March 2023; *** Data correction due to a provisional revision on 5 September 2024

Figure 6: Number of unemployed persons per job vacancy

Source: Institute for Employment Research (IAB) job survey

40 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

ever, the individual volume of labour is also low

when compared internationally. This is due, in

particular, to the high labour force participation

of women and older people, who often work

part-time. However, it also points to inadequate

conditions for a substantial rise in employment

for some groups of people. There are, for exam-

ple, disincentives for second earners in a mar-

riage (mostly women) or low-income earners in

the form of high marginal tax rates or transfer

withdrawal rates. Overall, the supply is also dis-

torted by the high tax burden (cf. Item 64). At the

same time, there are a lot of people who invol-

untarily work part-time or marginally, owing

to, for example, a lack of childcare options or a

lack of compatibility between their job and their

duties as a carer. According to the Social Report

2024, around 28% of all women working part-

time cite caring for children or adults in need of

care as the main reason for working part-time.

Extrapolating this, up to 645,000 more full-time

equivalents would be available to the labour mar-

ket if all mothers were employed to the extent

that corresponds to the ideal expectations of the

men and women between the ages of 18 and 50

surveyed (Data basis: FReDA wave 1 and 2021

microcensus). According to current studies, the

intensive expansion of child day care services to

meet demand and support caring duties at home

could lead to an increase in annual gross domestic

product in the mid double-digit billion range by

2030 and substantially higher fiscal leeway regard-

ing taxes and social contributions. At the same

time, around 13,000 vacancies in childcare and

education occupations were registered with the

Federal Employment Agency in December 2024.

The actual demand for skilled labour is likely to

be even higher, as employers who are looking for

staff without the support of the Federal Employ-

ment Agency are not included. There is, therefore,

an urgent need to reduce the shortage of skilled

workers in the childcare sector, since the associ-

ated increase in childcare provision has a positive

impact on the labour market as a whole. Fur-

ther adjustments to the framework conditions in

favour of substantial employment and thus eco-

nomic independence, especially for women, are

necessary.

63. Furthermore, at present, there is often a mis-

match between labour supply and labour demand.

This reflects a discrepancy between the qualifi-

cations sought by employers and those available

among jobseekers. This is partly due to the fact

that job profiles are changing rapidly in the wake

of digitalisation and decarbonisation, and partly

because an increasing proportion of jobseekers

do not have a (recognised) professional qualifi-

cation, while employers seeking to fill vacancies

often require this. At 13.1% in 2023, the propor-

tion of young people aged between 18 and 24

who do not have a vocational qualification or a

university entrance qualification and are not in

education or training is at a comparatively high

level internationally (EU average in 2023: 9.5%).

At 78.1% in 2023, the proportion of 30 to 34-year-

olds with a vocational qualification is low com-

pared to the last ten years. This means that more

than one in five people in this age group has no

vocational qualification whatsoever (cf. Chapter

D). Customised training and further education

opportunities, as well as modern general school

education, will, therefore, play a key role in main-

taining prosperity in Germany (cf. Item 68). The

importance of changing skills requirements and

the need for adapted education and training are

also emphasised at European level, particularly in

the Draghi Report. Broader access to early child-

hood education is also likely to become more rel-

evant in the years to come. The physical distance

between employers with job vacancies and poten-

tial employees can also represent a barrier. This

is why measures to ensure sufficient and afforda-

ble housing (cf. Chapter C.9), especially in regions

with productive and promising jobs, help to make

it easier to fill vacancies.

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 41

64. In Germany, earned income is subject to a rela-

tively high tax burden (taxes and, to a large extent,

social security contributions) compared to other

countries, which, in turn, has a negative impact

on the labour supply. Despite slight decreases in

the tax burden in recent years, according to the

OECD, Germany had the second-highest tax bur-

den on earned income of all OECD countries in

2023 at 47.9% for a childless single person with

average earnings (cf. also Chapter D). The aver-

age was 34.8%. Against this backdrop, reducing

or at least stabilising the high burden on earned

income in the years to come is vital, and priority

should be given to reducing the burden on low

and medium-range incomes. The contribution

rate for statutory pension insurance has been

18.6% since 2018 and will remain stable until

2026, according to the Federal Government’s cur-

rent pension insurance report. Disregarding the

draft laws that were only approved by the Cabinet

and taken into account in the 2024 pension insur-

ance report, the contribution rate will remain sta-

ble until 2027. The contribution to unemployment

insurance will also remain constant at 2.6% in

2025. At the same time, the actual average supple-

mentary contribution rate of the statutory health

insurance funds will rise by around 1.1 percent-

age points from 1.8% (at the end of 2024) to 2.9%

as of 1 January 2025. Together with the general

contribution rate of 14.6%, the average contribu-

tion rate levied in statutory health insurance will,

therefore, be 17.5% this year. Moreover, the con-

tribution rate for social long-term care insurance

will increase by 0.2 percentage points (cf. Figure 7).

Alongside the cost-intensive medical-technical

innovations, this is also attributable to the high

remuneration adjustments and wage increases

seen in the labour-intensive healthcare sector in

recent years. Furthermore, in 2025, the majority of

health insurance funds will have to rebuild their

Statutory pension insurance Statutory health insurance* Unemployment insurance Social long-term care insurance**

1970

1980

1990

1995

2000

2005

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

Figure 7: Annual average social security contribution rates as a percentage of gross earnings

subject to contributions

* incl. member-related average additional contribution actually levied; ** excluding the contribution surcharge for childless persons introduced on 1 January 2005, which

was 0.6% in 2024, and excluding the deductions for parents with several children introduced on 1 July 2023 (0.25 contribution rate points as of the second child per child,

maximum 1.0 contribution rate points).

Source: BMWK.

42 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

financial reserves, which have dropped below the

statutory minimum reserve. But above all, it is

demographic ageing that is putting social security

systems under further financial pressure, meaning

that unless fundamental adjustments are made,

contributions will continue to rise in the future.

This increase must be contained. For example, fur-

ther digitalisation in the healthcare sector could

encourage a greater efficiency in the use of finan-

cial resources.

65. Particularly in the lower income bracket, the

interplay between various state transfer payments

can also mean that working more is not always

worthwhile, since rising income is largely offset by

the reduction or elimination of transfer payments.

It is, therefore, important to better harmonise

social benefits and thereby avoid high marginal

burdens. At the same time, however, the fiscal

consequences must be borne in mind.

66. In order to bolster the economy with a view to

securing skilled labour, the Federal Government

has carried out important measures throughout

the legislative period. It has, for example, facil-

itated and accelerated the migration of skilled

labour by implementing the amended EU Blue

Card Directive, one of many important elements

of the Act on the Further Development of Skilled

Labour Immigration. In 2024, this development

was completed with the introduction of the job

search opportunity card. Preliminary figures

show that the number of applications for visas

for employment purposes rose by over 11% to

around 200,000 in the first year after the first stage

of the new skilled labour immigration law came

into force. The one-off increase in the minimum

wage by law to €12 an hour during the crisis not

only counteracted the loss of purchasing power,

but also reduced the share of low-wage earners.

In the future, the minimum wage level will con-

tinue to be adjusted on the recommendation of

the Minimum Wage Commission in accordance

with the statutory requirements, in line with wage

developments and taking into account the thresh-

old value of 60% of the gross median wage – as

recommended by the existing Minimum Wage

Directive at EU level – and will, therefore, bene-

fit accordingly from positive wage developments.

The 2022 Pension Adjustment and Disability Pen-

sion Improvement Act (Pension Package I) helped

to stabilise statutory pensions. Abolishing the

supplementary income limit for pensioners who

have taken early retirement has also boosted work

incentives for pensioners.

67. Further important measures were adopted in

2024. For example, the further development of

the Children’s Daycare Quality Act, which entered

into force on 1 January 2025, and the overall strat-

egy for skilled workers in day care centres and

all-day care will help to improve childcare options

and thus the conditions for parents – especially

mothers – to increase their hours of work. Both

measures also strengthen children’s participation

opportunities. As part of the Growth Initiative in

particular, many measures were planned for the

further activation and development of the domes-

tic labour potential and for the migration of

skilled labour, but they could no longer be imple-

mented.

68. To better support companies in the trans-

formation, the Act to Strengthen the Promotion

of Initial and Continuing Vocational Training

introduced, among other things, the qualifica-

tion allowance on 1 April 2024. It can be utilised

by companies under pressure to transform so as

to keep employees in the company by offering

them further training. In addition, the promo-

tion of further vocational training for employees

anchored in the Third Book of the German Social

Code (SGB III) was reformed. The training guar-

antee, which is also included in the law and came

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 43

into force on 1 April 2024, opens up access to fully

qualifying vocational training for all young peo-

ple who are without any professional qualifica-

tion. Improvements in education and training can

not only increase employability, but also labour

productivity. In view of the relatively weak devel-

opment of labour productivity in Germany and

Europe (cf. Chapter A), this is key, in addition to

increasing or expanding the labour supply itself in

the years to come. Measures in the area of digitali-

sation and AI will also contribute to this (cf. Chap-

ter C.4).

MIGRANTS

11. Repatriation Improvement Act

The law, which entered into force on 27 February 2024, reduced work bans for refugees who are obliged to live

in reception centres from nine to six months. The granting of work permits to tolerated persons has been made

easier, provided no specific measures to end their stay are imminent. There has also been an easing of restrictions

on tolerated employment and the creation of a new residence permit for vocational training for foreign nationals

who are obliged to leave the country.

12. Skilled Immigration Act and Ordinance on the Employment of Foreigners

The second and third stages of the Act and Ordinance on the Further Development of Skilled Immigration came

into force on 1 March and 1 June 2024. This expanded access to training and employment, and further liberalised

and simplified existing access to the labour market. The Federal Government is also continuing to work on the

sub-legislative measures of the key points on skilled labour immigration from third countries.

13. Skilled Labour Strategy: India

In the autumn of 2024, the Federal Government adopted the Skilled Labour Strategy: India. It aims to attract

more qualified workers from India to Germany and, in cooperation with India, to continue working on good

framework conditions in such areas as recruitment, visa issuance, language courses, recognition of foreign pro-

fessional qualifications and integration. To this end, the Federal Government is planning to set up a sub-working

group on labour migration with the Indian side as part of the Joint Working Group of the Migration and Mobility

Partnership Agreement with India.

PARENTS (ESPECIALLY MOTHERS) AND WOMEN

14. Children’s Daycare Quality Act (GI measure no. 21)

The aim of the Childcare Quality Act is to further develop the quality of early childhood education and care

nationwide and to improve attendance at early education programmes. To this end, the Länder are taking meas-

ures based on their individual needs and the specific situation of childcare in their federal state. The Federal Gov-

ernment is providing funds to compensate for this by changing the distribution of the sales tax across different

branches of government. On 1 January 2025, the Third Act on the Further Development of Quality and Partici-

pation in Child Daycare came into force; it develops the Childcare Quality Act further. With this further amend-

ment, the Act will focus on seven areas of action in the future that are of particular importance for the quality of

childcare and in which nationwide standards are aimed for in the long term. To compensate for this, the federal

states will receive a €4 billion in 2025 and 2026 as part of the vertical distribution of sales tax.

→

44 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

15. Action Plan “More female entrepreneurs for SMEs”

As part of the “More female entrepreneurs for SMEs” action plan presented in 2023, further specific measures

were applied in 2024 by the Federal Government and numerous stakeholders to support women’s self-employ-

ment and to get girls interested in STEM subjects as well as professions relating to the climate and skilled trades.

The action plan has been expanded to comprise a total of 47 measures. For example, progress was made in the

area of venture capital, in reconciling self-employment and family life and in expanding target group-specific

coaching and advisory programmes (e.g. extension of the “EXIST-Women” funding programme). Furthermore,

around 400 events with so-called role model entrepreneurs were organised as part of the “FRAUEN unterneh-

men” initiative to inspire young women to become entrepreneurs.

INITIAL AND FURTHER TRAINING

16. Initial and Further Education Act

The Initial and Further Education Act has made a significant contribution to securing domestic skilled labour

potential and supporting companies with their transformation process. The law enshrined the training guarantee

in the German Social Code III. It essentially took effect on 1 April 2024 and includes various advisory and sup-

port services, from career guidance and counselling to assistance in starting and successfully completing voca-

tional training. Since 1 August 2024, there has also been a legal entitlement to support in non-company voca-

tional training in undersupplied regions so long as the other requirements are met.

The Act also further developed the support for continuing vocational training within the framework of Social

Code III as of 1 April 2024 and added a new funding option with the introduction of the qualification allow-

ance. Support for employees has been simplified and made easier to plan and is now open to all employers and

employees. Financial support has also been increased, particularly for SMEs. The skills development benefit sup-

ports companies that are particularly affected by structural change to retain their workforce by offering them

further training.

17. National Skills Strategy

The National Skills Strategy is supported by a broad alliance of partners. Specific measures for the further devel-

opment of the continuing education system are being developed and applied. The aim is to maintain employabil-

ity, security and prosperity by establishing a culture of continuing education. Participation in continuing educa-

tion is to be raised to 65% by 2030. The second National Skills Strategy implementation report will be published

at the end of February 2025.

18. Continuing education agencies and the “mein NOW” national online portal for job training and

further education

The Federal Government is assisting the establishment and expansion of continuing education agencies to cre-

ate a nationwide structure of central contact points under an umbrella brand for further education counselling

in Germany. This is because local further education counselling is the linchpin for finding suitable training offers

and making forward-looking educational decisions.

The national online portal for continuing vocational education and training “mein NOW” has been available

online since the beginning of 2024; it can be used as a digital, independent initial counselling service to help

people tap into professional development and qualification opportunities. The portal offers information on all

aspects of further vocational education and training, such as further training opportunities, self-assessment

tests regarding skills as well as counselling and funding opportunities.

→

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 45

19. Vocational Training Validation and Digitalisation Act (BVaDiG)

For the first time, the BVaDiG creates the possibility of establishing and certifying professional competence that

has been acquired independently of a formal vocational training qualification but is comparable to vocational

training under the German Vocational Training Act or the German Crafts and Trades Regulation. People over the

age of 25 who do not have any formal vocational qualification but who do have many years of professional expe-

rience can have their skills compared and assessed against the requirements of a job one can gain a qualification

for through the dual vocational training system and thus make them visible and usable. Full comparability opens

up access to the further training sector and to the qualification that allows them to train apprentices themselves.

In addition, digital documents and digital (administrative) processes that are accessible with no media discon-

tinuity are consistently enabled in vocational education and training. The Act came into force on 1 August 2024

and the new assessment procedure will apply as of 1 January 2025.

20. 29th Amendment to the Federal Training Assistance Act (BAföGÄndG)

The 29th Amendment to the Federal Training Assistance Act addresses key plans to strengthen equal opportu-

nities in education. Besides an increase in the benefit rates, the housing cost supplement for students not living

with their parents and parental allowances, the plans also include structural adjustments, such as the introduc-

tion of a study startup grant for students from financially disadvantaged families, a flexible semester and making

it easier to switch courses.

The law came into effect at the start of the academic year, i.e. at the start of the 2024-2025 winter semester.

MISCELLANEOUS

21. Work opportunities for people who refuse to take measures (GI measure no. 23e)

Work opportunities in accordance with section 16d Social Code Book II can be used to maintain or (re-)establish

the employability of those in receipt of citizen’s benefit who refuse to take part in measures or repeatedly fail to

attend appointments at the job centre. The use of work opportunities for people who repeatedly refuse measures

to get them into employment and repeatedly miss appointments was regulated via secondary legislation; the

professional directive for section 16d Social Code Book II was updated on 21 October 2024.

22. Hospital reform

The core objectives of the reform of the hospital sector are to ensure and improve the quality of treatment, guar-

antee comprehensive medical care for patients, increase efficiency in hospital care and cut red tape. Since the

hospital sector accounts for around one third of statutory health insurance expenditure, this reform will help to

ensure that statutory health insurance funding is put on a sustainable and more stable basis. Reducing the rise

in the high number of treatment cases in hospital by just one percentage point will lead to annual savings of

around €650 million. So as to encourage more needs-based, specialised and cross-sector hospital care, the statu-

tory health insurance system will incur noticeable additional expenditure in the short to medium term, for exam-

ple by providing a total of up to €25 billion to finance the Hospital Transformation Fund by 2035. However, the

elimination of incentives regarding the unchecked expansion of hospital services, more outpatient care and the

targeted promotion of concentration processes can be expected to result in noticeably lower expenditure in the

statutory health insurance system, which in the long term will lead to savings of several billion euros for the stat-

utory health insurance system and its contributors.

46 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

C.4 Innovation: making more effective

use of the opportunities offered by

digitalisation

69. Increasing innovative capacity and produc-

tivity are crucial for new economic dynamism –

all the more so in times of a shortage of skilled

labour. To exploit this potential, the Federal Gov-

ernment is working very hard on creating an

innovation-friendly legal framework. Particularly

in the case of new, innovative technologies and

approaches, there is often ex-ante uncertainty

about the best regulatory framework. In this con-

text, regulatory sandboxes are a suitable instru-

ment for enabling regulatory learning through the

trialling and supporting of the rapid transfer of

innovations into actual practice. To increase the

development activities of businesses, the Federal

Government has also strengthened tax incentives

for research as part of its Growth Opportunities

Act. The startup strategy has enhanced the frame-

work conditions for young, innovative firms and

strengthened the startup ecosystem (cf. AER 2023,

Box 9). Over 80% of the roughly 130 measures

have now been applied. The founding climate for

startups improved noticeably in 2024: around

11% more startups were founded than in the year

before. The role of patents in innovation capability

also remains essential. At the European and inter-

national level, the Federal Government is, there-

fore, advocating a strong system of protection for

intellectual property rights.

70. Digitalisation is a core facet of technologi-

cal change and a cross-sectoral issue that affects

all areas of society. It plays a key role in boost-

ing innovation and increasing productivity. By

implementing its digital strategy, the Federal

Government is bringing about the conditions

that are needed for a Germany that is both digital

and sustainable. This includes high-performance,

future-proof digital infrastructures for innovation.

They are a prerequisite for exploiting the possibil-

ities offered by modern digital technologies and

contribute to the international competitiveness

of companies. Numerous modern applications,

such as autonomous driving, e-health and pre-

cision agriculture, are simply not possible with-

out high-performance digital infrastructures and

communication technologies. This is why the Fed-

eral Government is continuing to drive forward,

for example, the expansion of gigabit networks

and the research and development of future com-

munication systems (particularly 6G mobile com-

munications).

71. So that Germany and Europe may benefit

more from data-based value creation, additional

framework conditions that go well beyond the

digital network infrastructure and better ena-

ble the responsible use and sharing of data are

required. This is why the Federal Government

has facilitated access to and the use of data for

research and innovation with sector-specific

regulations and is fostering the development of

data ecosystems. This also serves to indirectly

strengthen the evidence base of policy and prom-

ises great social benefits. Among other things,

this applies to the medical sector, in particular

to innovations in therapies and care that benefit

everyone. In order for Germany and Europe to

benefit even more from data-based value creation

and science-based policy, there is a need for fur-

ther improvements with regard to the accessibil-

ity, collation and utilisation of data, for example

for science and research. This calls for clear and

innovation-friendly rules that also adequately

protect personal rights. Data ecosystems must

provide protection against unauthorised access

and also offer attractive access for SMEs.

72. When it comes to the research, development

and application of artificial intelligence (AI), Ger-

many has important prerequisites that would

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 47

allow it to take a leading position worldwide. AI

research in Germany is also recognised by the

OECD4 and is internationally acknowledged. The

Federal Government aims to make Germany and

Europe a leading hub for the research, devel-

opment and use of AI and, at the same time, to

ensure the innovation-friendly and responsible

development and use of AI in the interest of the

common good. The Federal Government is creat-

ing important framework conditions for this. The

European Artificial Intelligence Act (Regulation

(EU) 2024/1689) has created standardised hori-

zontal conditions for the development and use of

these innovative technologies in Europe. It also

supports the use of AI in the economy (cf. also C.7,

Item 75). In order to fully exploit the potential of

AI, a pragmatic, appropriate and legally compliant

approach to data protection is required; it should

uphold protection standards, particularly for sen-

sitive data and in sensitive contexts, while at the

same time leaving room for innovative data use.

INNOVATION-FRIENDLY LEGISLATION AND DIGITAL INFRASTRUCTURE

23. Regulatory sandboxes and draft law on regulatory sandboxes

The Federal Government is continuously striving to improve the framework conditions for testing innovative

ideas and solutions in regulatory sandboxes. The draft of the Regulatory Sandboxes Act, which the Federal Gov-

ernment launched with a cabinet decision in November 2024, aims to strengthen regulatory sandboxes as an

instrument for fostering innovation and regulatory learning, to make approval processes standardised and inno-

vation-friendly and thus to enable better and more frequent use of regulatory sandboxes. Beyond the Regu-

latory Sandboxes Act, the Federal Government is reinforcing further legal options for regulatory sandboxes by

anchoring new experimentation clauses in various specialised statutes. To achieve this, all bills and amendments

submitted by federal ministries will, in future, be subject to a mandatory review (digital review scheme) to deter-

mine whether the implementation of further specialised experimental clauses is required in order to create new

testing opportunities. A regulatory sandbox innovation portal has also been under development since November

2024; it will act as a hub for advice, information, networking and knowledge transfer to support the practical

implementation of regulatory sandboxes. The pilot operation will start in May 2025.

24. EU Gigabit Infrastructure Act

This Regulation entered into force on 11 May 2024. It is designed to organise and accelerate the expansion of

very high capacity networks (VHCN) across the EU in a more cost-efficient manner. It serves the objectives of

the gigabit strategy. The Regulation also serves to achieve the EU’s 2030 connectivity targets. It provides for

measures such as the improved use of existing infrastructure, optimised planning and coordination of construc-

tion work, faster approval procedures and the equipping of new and extensively renovated buildings with a fibre

optic infrastructure.

As an EU regulation, it will apply directly as of 12 November 2025. For the most part, it does not require any

national transposition measure. Nevertheless, adjustments to national statutes, in particular the Telecommuni-

cations Act, will be necessary.

→

4 For example, Report on artificial intelligence in Germany (https://www.oecd.org/en/publications/oecd-artificial-intelligence-review-of-

germany_609808d6-en.html)

48 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

25. Measures taken under the gigabit strategy

Germany continues to make good progress in expanding the most efficient digital infrastructure. According to

new data from the Federal Network Agency, fibre optic was already available to 35.7% of households as of June

2024. As of October 2024, 93.2% of the country was already covered by 5G. The progress report on the gigabit

strategy shows that 87% of the measures in the strategy have been successfully launched or completed. Addi-

tional measures have been added to the strategy to further accelerate network expansion. They include the

implementation of a nationwide mobile communications measurement week to collect further data on actual

mobile communications coverage, an information campaign on the benefits of having a fibre optic connection,

and an increased focus on the roll-out of fibre optic cabling within buildings, particularly in rented flats. More-

over, the Federal Government and the Federal Network Agency will develop a concept for the migration from

copper to fibre optic cables with the involvement of the industry.

DATA ECOSYSTEM AND DIGITAL TECHNOLOGIES

26. Implementation of the Data Governance Act

The Data Governance Act regulates the re-use of protected public sector data, requirements for data intermedi-

ary services so that they act as trusted neutral organisers for data sharing, as well as requirements for data altru-

istic organisations to ensure that data sharing by trusted organisations is based on EU values and principles.

The Federal Government has launched a draft implementing act for the Data Governance Act (cabinet decision

of 4 September 2024). In particular, the Data Governance Act designates the Federal Network Agency as the

competent national supervisory authority for data brokerage services and for data altruistic organisations. The

Federal Statistical Office is designated as the competent authority and central information centre for the reuse

of protected public sector data.

27. Generative AI for SMEs

The aim of the technology focus “AI Innovation Competition – Generative AI for SMEs” is to bring about the

conditions for the use of generative AI in companies and to demonstrate the added value of generative AI for

relevant fields of application, especially for industrial production, by providing concrete solutions. The projects

funded will provide substantial stimulus for the successful and productive use of generative AI in SMEs as well

as favouring copy-cat effects in the technology landscape. The technical focus is on further developing, adapting

and implementing (existing) generative AI models as well as collecting, processing and providing the necessary

data sets. German or European language models and open source solutions are being prioritised. The launch of

the generally 3-year funding projects is planned for February 2025.

28. Flexible, resilient and efficient machine learning models

The funding initiative addresses open basic research questions in the field of AI so as to enable a broader use of

AI in the future and to address current problems such as a lack of robustness and high energy requirements. To

this end, a total of 17 research projects with a total volume of around €27 million will be funded in the period

from 2024 to 2027. The focus will on the following topics:

• the development of new approaches for learning algorithms that increase the robustness and generalisation

capability of AI models.

• the development of new methods for combining machine learning approaches with domain knowledge

• the further development of complex simulation models using machine learning methods (especially in the

natural sciences)

• the development of new approaches for robust and efficient foundation models

→

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 49

→

29. MISSION AI

Between 2024 and 2027, the “Mission AI” project will develop the organisational and technical foundations for

cross-spatial data provision and use as well as its pilot implementation in practice.

• A minimum standard for AI quality for low-risk AI (beta version for the Digital Summit 2024, provision of test

procedures and methods by the end of 2025)

• Opening of an AI quality and innovation centre in Kaiserslautern in July 2024, opening in Berlin in January 2025,

others in the planning stage

• Launch of matchmaking series of AI startups and SMEs in July 2024

• Start of SPRIND Challenge on the topic of deepfakes in September 2024, to run until November 2025

30. Mittelstand-Digital (Network of SME Digital Centres and “IT Security in the Economy” initiative)

Artificial intelligence and the general ability to use AI-based tools or business models have been the new corner-

stones of the nationwide network of SME Digital Centres since the middle of 2024. The centres offer low-thresh-

old information and training opportunities as well as practical examples to support SMEs with regard to sustain-

able digitalisation until the end of 2026. They work closely with the Cybersecurity in SMEs transfer centre of the

“IT Security in the Economy” initiative. This initiative provides free services to protect SMEs from cyberattacks, to

make it easier to recognise cyberattacks and to respond to them more effectively.

31. Sovereign Tech Fund/Sovereign Tech Agency

With the Sovereign Tech Fund (STF), the Federal Government is reinforcing the open source ecosystem. The STF

identifies critical basic digital technologies and awards contracts to invest in their protection and further devel-

opment. By doing so, the STF contributes to the overarching goal of Europe’s digital sovereignty. In November

2024, the STF was transferred to the Sovereign Tech Agency, an independent subsidiary of SPRIND. Putting it

onto this stable footing gives the STF an additional degree of independence and enables it to develop and scale

up in terms of content.

32. Draft Mobility Data Act

The Federal Government has launched the draft Mobility Data Act (Cabinet decision of 2 October 2024), which

aims to significantly improve the provision of mobility data in terms of quantity and quality and to minimise the

barriers to data use. The Act aims to create the conditions for modern mobility services and the development of

new business models. It remains to be seen whether a new Federal Government will take up this draft law.

33. Medical Research Act

The Medical Research Act achieves key objectives of the pharmaceutical strategy. Approval procedures will

be simplified and accelerated; clear, simple responsibilities will be created and testing requirements harmo-

nised. The measures will improve the framework conditions for clinical trials, marketing authorisation and the

manufacture of medicinal products. In turn, this will enhance Germany’s attractiveness as a centre for medical

research and improve access to new treatment options for patients.

34. Health Data Utilisation Act

The Health Data Utilisation Act came into force in spring 2024 and strengthens Germany as a business location.

The Act brings about the legal framework for a practicable balance between data protection on the one hand

and the use of health data and data protection-compliant access to health data on the other. Establishing and

expanding of a networked health data infrastructure will strengthen Germany as a centre of research, enable

innovation and make Germany more competitive internationally.

→

50 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

C.5 Capital markets: increasing efficiency,

facilitating startup financing

73. Efficient capital markets play a key role in a

country’s dynamic economic development. Devel-

oped and liquid capital markets channel finan-

cial resources into highly productive sectors of

the economy, thus strengthening the long-term

growth potential of an economy. In turn, inte-

grated capital markets improve the allocation of

risks and expand the financing options available

to firms. Besides the shallow depth of Germany’s

capital market, German companies have a high

ratio of debt to equity capital and a low level of

market capitalisation compared to other European

countries (cf. Figure 8). By international compari-

son, the economies of the EU as a whole also have

below-average market capitalisation and a high

ratio of debt to equity among industrialised coun-

tries.

Adequate access to private capital is absolutely

necessary to stimulate the rate of investment.

Improving the financing conditions for busi-

nesses further is, therefore, crucial. Access to

various forms of financing also determines how

attractive Germany is as an investment location

for innovative founders, startups and fast-grow-

ing companies. That is why the Federal Gov-

ernment is taking various measures to facilitate

the founding of companies and strengthen the

startup ecosystem.

74. The Federal Government is strongly in favour

of strengthening the competitiveness of the Ger-

man and European financial markets. At the same

time, mobilising more private investment is a key

concern.

The Federal Government is campaigning at Euro-

pean level for the deepening of the EU Capital

Markets Union. This is because a deep and liquid

European capital market is crucial for growth,

innovation and investment. The EU can only

remain competitive internationally if it has a

strong capital market. That is why the Federal

Government is also committed to the consistent

removal of bureaucratic hurdles in this area.

Numerous important measures have already been

launched at European level, such as the revision of

the Markets in Financial Instruments Regulation

(MiFIR) and the EU Listing Act, which is intended

to provide easier access to the capital market for

small and medium-sized companies.

The Federal Government has significantly

improved the framework conditions in Germany

as a financial centre with the Financing for the

Future Act I. Further significant improvements are

to follow with the government draft for a Financ-

ing for the Future Act II and the “Growth and

Innovation Capital for Germany” initiative (WIN

Initiative). The aim is to continuously boost the

attractiveness and competitiveness of Germany

35. European Health Data Space (EHDS)

In the spring of 2024, the Council and the European Parliament agreed on a compromise text for the EHDS

Regulation, which was adopted in the corrigendum version in the European Parliament in December 2024. The

Council will discuss the Regulation again at the end of January 2025. Publication in the Official Journal and its

entry into force will probably take place in the first quarter of 2025. The Regulation creates a European legal

framework for the use of health data for healthcare (primary use) and for research, innovation and the further

advancement of healthcare (secondary use) within EU Member States and across borders. Implementation dead-

lines are set at two, four, six and 10 years after entry into force.

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 51

as a financial centre. Among other things, the

Financing for the Future Act I has improved the

opportunities for employee capital participation

through attractive tax regulations and made it

easier for smaller companies to gain access to the

capital market by means of simplified regulatory

requirements.

75. Innovative startups with high financing

requirements in particular benefit from these

measures. The WIN initiative is designed to

mobilise private capital and improve the frame-

work conditions for growth and innovation cap-

ital in Germany. In cooperation with the KfW,

Germany’s development bank, the Federal Gov-

ernment is also providing additional venture cap-

ital for startups through the HTGF Opportunity

Fund launched in 2024 and the other new future

fund components in the field of impact invest-

ments and direct co-investments. Capital from

private investors is also involved.

US SE JP UK FR EU27 DE

DESK SILU ATPTPL ITBEHU LT LV LV FI EE ES IE NL FR DK SE JP UKEUCZGR

Percent of GDP Borrowed capital in percent of equity

2010 2019

Heterogeneous but high ratio of debt to

equity in the EU

Low market capitalisation of companies

listed in Germany

120

150

180

120

150

180

Figure 8: Market capitalisation and debt to equity ratio

Source: 2023-24 annual report of the German Council of Economic Experts.

52 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

START-UP FUNDING

36. WIN initiative (GI measure no. 29)

As part of the Growth and Innovation Capital for Germany (WIN) initiative, a broad alliance of businesses, asso-

ciations, politicians and the KfW has pledged to jointly drive forward the further expansion of the ecosystem for

growth and innovation financing, especially in Germany. A comprehensive package of measures to optimise the

framework conditions for growth and innovation capital in Germany was agreed. At the same time, the partici-

pating companies intend to invest around €12 billion in further bolstering the German venture capital ecosystem

by 2030.

37. Start of the HTGF Opportunity Fund

The HTGF Opportunity Fund is a new fund that has complemented the HTGF platform since the middle of 2024

and invests in the fastest-growing portfolio companies of HTGF early-stage funds I-IV in order to bolster growth

financing in Germany. To achieve this, the ERP Special Fund and the Future Fund have a total of €660 million at

their disposal. HTGF’s business investors have to be persuaded to invest in the fund by the end of 2025.

38. Future Fund building blocks for impact investment and direct co-investments

As part of a planned new Future Fund component for impact investments, €200 million has been earmarked

for investments by KfW Capital in impact funds that aim to achieve a measurable positive, social or ecological

impact in addition to a financial return.

Furthermore, a planned new Future Fund component for direct co-investments provides for KfW Capital to

utilise €1 billion to make direct investments in young startups in innovative technology sectors, together with

private venture capital funds.

39. Strengthening ERP digitalisation and innovation financing

Over the course of the year, ERP financing for digitalisation and innovation will be reorganised together in

collaboration with the KfW. Companies should be able to obtain information on their individual investment

requirements quickly and easily and then finance them with suitable loan programmes. Moreover, promotional

grants will complement the interest rate reduction as a new promotional element in the ERP digitalisation and

innovation loan.

40. Second Financing for the Future Act

The government draft for a Financing for the Future Act II aims to further boost the competitiveness of Germany

as a financial centre and to further improve the financing options for young, dynamic companies. For this pur-

pose, it provides for the following measures to improve the (tax) framework conditions for investments in ven-

ture capital:

• Changes made to the taxation of investments in commercial partnerships by funds that fall under the Invest-

ment Tax Act, and

• Changes to the taxation of profits from the sale of holdings in corporations held as business assets if they are

re-invested (“roll-over”).

• There will also be a relaxation of protection against dismissal for very high-income earners in the financial

sector.

→

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 53

The proposed new regulations on investment tax and in the Capital Investment Code are designed to remove

obstacles to investments by investment funds and special investment funds in infrastructure and renewable

energies by creating a legally secure framework. The bill contains numerous measures to cut bureaucracy,

including the removal of a large number of auditing, reporting and notification obligations. A key component

of the bill is also the execution of a series of EU capital market legislation. These include the ESAP legislative

package, the Listing Act and the MiFIR Review. Thus, IPOs or the public offering of securities will be made

easier, access to financial market information will be improved, and the principle of proportionality will be made

easier for companies, too.

GENERAL MEASURES

41. EU Listing Act

The legislative proposal on the Listing Act presented by the European Commission on 7 December 2022 is meant

to improve the conditions for public listings of companies and facilitate access to the capital market, especially

for small and medium-sized enterprises (SMEs). It provides for changes to be made to the requirements for

admission to listing, prospectus law and insider and market abuse law. The package also includes a proposal for

a directive on multiple-voting shares. The negotiations on the Listing Act have now been finalised. The final leg-

islative texts were published in the Official Journal of the European Union on 14 November 2024 and came into

force 20 days after publication (on 4 December 2024).

42. Revision of the EU Markets in Financial Instruments Regulation (MiFIR Review)

The revised EU Markets in Financial Instruments Regulation (MiFIR), which entered into force on 28 March 2024,

is aimed at creating a consolidated tape for trading data (consolidated tape), strengthening exchange trading, and

standardising and simplifying the publication of trading data in the bond and derivatives market. The Regulation

also provides for a ban on payments to securities service providers for the forwarding of securities trading orders

(payment for order flow), which will only apply to domestic situations as of 1 July 2026. Regulations regarding

the implementation of the MiFIR Review in Germany are contained in the bill of the Federal Government for a

Second Financing for the Future Act (ZuFinG II).

Statement by the Federal Government

on Chapter 3 “Strengthening the Future

Orientation of Public Finances” of the

Annual Report of the Expert Council on

Integration and Migration (GCEE)

76. In one chapter, the GCEE emphasises the

opportunities presented by digital change in the

financial sector. It regards maintaining the balance

between enabling digital innovation on the one

hand and maintaining financial stability on the

other as a key economic policy task.

77. In order to trial digital innovation in the finan-

cial sector in a simplified regulatory environment,

the German Council of Experts (GCEE) advocates

limited regulatory sandboxes for financial ser-

vices (Annual Report Item 310). The GCEE also sees

potential in open banking models to create new

financial products of higher quality. At the same

time, regulations on data sharing in the financial

sector should always be limited to data from pri-

vate individuals, since company data often requires

the banks to check and monitor a lot of informa-

tion. Beyond this, BigTechs that undertake finan-

cial business could be obliged to pass on data at the

54 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

request of their customers in order to create a “level

playing field” for all players (Annual Report Item

312).

The Federal Government recognises the potential

in regulatory sandboxes for promoting innovation

and competition as well as for regulatory learn-

ing, including in the area of digital financial tech-

nologies. So as to bring about innovation-friendly

framework conditions for regulatory sandboxes,

the Federal Cabinet passed a bill on 13 November

2024 to improve the framework conditions for

testing innovations in regulatory sandboxes and to

promote regulatory learning (Regulatory Sandbox

Act). It forms a vital starting point for further meas-

ures, including those in the field of digital financial

technologies (e.g. new experimentation clauses). A

corresponding sandbox has already been created at

European level with the “Distributed Ledger Tech-

nologies” pilot regime. The AI Regulation also pro-

vides for the creation of AI regulatory sandboxes to

foster innovation by August 2026.

The Federal Government shares the view that

open finance regimes are a key factor for new busi-

ness models in the financial services sector. The

Financial Data Access (FiDA) Regulation, which is

currently being negotiated at the European level,

would, for the first time ever, create obligations to

share data for the majority of regulated financial

service providers, including FinTechs and BigTechs.

Open finance regulation should not be limited to

data from private individuals alone. The provision

of company data significantly expands the range of

possible open finance business models. At the same

time, the draft FIDA Regulation provides for com-

pensation for data holders for providing data. This

is meant to prevent possible underinvestment in

data collection. In the area of open banking, banks

are already obliged to provide interfaces for access

to payment data for non-bank payment service

providers.

78. In the opinion of the GCEE, strengthening

and reforming European securities and insurance

supervision could contribute to the most stand-

ardised application of common regulations in the

EU (GCEE Annual Report Item 309). To ensure that

established banks are not “abruptly weakened” by

the digital transformation, the GCEE calls for the

monitoring of the relevant interfaces as well as of

the banks’ risk assumption and liquidity situation.

In view of the increasing importance of market

financing, progress in the Capital Markets Union

is essential (GCEE Annual Report Item 311). To

properly address the challenges and risks associ-

ated with the activities of BigTechs in the financial

market, the GCEE, the Expert Council on Inte-

gration and Migration, advocates spinning off all

financial transactions of BigTechs into a separate

holding company and subjecting them to pruden-

tial requirements, while at the same time applying

governance rules to the entire group (GCEE Annual

Report Item 313).

The Federal Government advocates greater con-

vergence of European capital market supervi-

sion. Standardised, efficient and reliable capital

market supervision in Europe will enhance the

competitiveness and attractiveness of Europe as

a financial centre and of each individual Mem-

ber State. Greater supervisory convergence will

reduce bureaucratic hurdles and the duplication of

supervisory structures in Europe. Monitoring the

risk-taking and liquidity situation of banks is a core

task of banking supervision (BaFin, SSM). Super-

visors are also increasingly focusing on interfaces,

such as in the areas of white labelling and third-

party monitoring. The obligations for firms in the

financial sector to notify BaFin, the Federal Finan-

cial Supervisory Authority, of existing material

outsourcing arrangements are also relevant in this

context. The Federal Government is championing

a range of measures to deepen the Capital Markets

Union.

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 55

The increasing presence of BigTechs harbours

risks. These must be adequately tackled without

hindering innovation in the financial sector. The

GCEE’s proposals, therefore, demand that a differ-

entiated view be taken and they must be analysed

further, since the choice of regulatory instrument

always depends on the specific risks of the busi-

ness.

79. The Federal Government takes note of the rec-

ommendations of the GCEE with regard to the

options for shaping a digital euro. It shares the

GCEE’s view that any possible digital euro must

not harbour any risks for financial stability. Con-

sequently, the Federal Government advocates

designing a possible digital euro in such a way that

it excludes any corresponding risks. The introduc-

tion of a possible digital euro and its key design

features must be decided in the political arena

by the European legislator. Such a decision is still

pending.

C.6 Energy: maintaining the momentum

of the energy transition, reducing system

costs

80. The further development of the German and

European energy system is of crucial importance

to ensure a secure and affordable energy supply

and successful decarbonisation. The energy transi-

tion aims to achieve comprehensive decarbonisa-

tion through increasingly climate-neutral energy

generation and an increase in energy efficiency.

At the same time, grid and storage infrastructures

and market mechanisms must be modernised and

adapted to allow for the efficient integration of

renewable energies and new electricity, heat and

hydrogen consumers into the energy system.

81. Electricity and gas prices on the spot markets

have fallen significantly compared to the years of

crisis (cf. Figure 9). This decline is already evident

in the new contracts for both private households

Power Germany/Luxembourg baseload Natural gas TTF Index

Euro/MWh

-100

100

200

300

400

500

600

700

01.01.18 01.01.19 01.01.20 01.01.21 01.01.22 01.01.23 01.01.24 01.01.25

Figure 9: Wholesale prices for electricity and gas

Source: Macrobond.

56 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

and industrial companies. For example, the aver-

age electricity price for new contracts in industry

(annual consumption of 160,000 to 20 million kWh)

in 2024 was 16.99 ct per kWh due to the abolition

of the Renewable Energy Sources Act (EEG) levy

and thus below the level from 2017 to 2020. In the

mineral oil sector (petrol, diesel, heating oil), end

consumer prices have also fallen significantly again,

but have not yet returned to the level in 2020.

Even though the energy crisis has been surmounted,

its consequences are still clearly noticeable. The gap

between end consumer prices for electricity and gas

in German industry and major international com-

petitors such as the USA has widened as a result of

the energy crisis (cf. Figure 10). Industrial companies

are affected to varying degrees on account of their

different procurement strategies and relief meas-

ures (electricity price compensation for energy-in-

tensive industry, recourse to individual grid fees in

accordance with section 19 II StromNEV (Electric-

ity Network Charges Ordinance), energy tax and

electricity tax relief, abolition of the EEG surcharge

and compensation of the EEG differential costs by

the Federal Government). In order to prevent the

energy price crisis and its consequences for the com-

petitiveness of German industrial companies from

persisting, the Federal Government is carrying out

measures to cushion energy costs in the short term

and to reduce them in the long term (cf. Item 88).

82. In 2023, around 22% of gross final energy con-

sumption in Germany was supplied by renewable

sources of energies. This is just above the tar-

get path, which envisages a development to 30%

by 2030. The approval and construction of solar

100

150

200

250

300

350

100

120

140

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

Euro/MWh Euro/MWh

Germany France Italy USA Japan

Natural gasElectricity

Figure 10: International comparison of end consumer prices in the industrial sector

Source: International Energy Agency (IEA). For electricity consumers with an annual consumption of 2 to 20 GWh and gas consumers with an annual consumption of

100,000 to 999,999 GJ, less VAT and other refundable taxes and levies. The price developments of the past year, which Figure 9 shows with regard to German wholesale

prices, are not included in this ﬁgure due to the time lag in data availability.

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 57

and wind energy plants has gained significant

momentum following an ambitious amendment

to German energy legislation and the implemen-

tation of measures to speed up approval and plan-

ning procedures during this legislative period

(cf. AER 2024, Item 112). Last year, for example,

onshore wind turbines totalling almost 11 giga-

watts were awarded a contract and around 15 GW

were newly approved (cf. Figure 11). At the same

time, around 16.2 gigawatts of photovoltaic sys-

tems and around 3.3 GW of onshore wind energy

were installed. In the offshore wind energy sector,

all tendered areas (totalling 16.8 gigawatts) were

awarded in 2023 and 2024. This is roughly equiva-

lent to the current total installed offshore capacity

per year (currently around 9.2 gigawatts).

83. Besides the expansion of renewable energies,

efficient and intelligent electricity grids are a cru-

cial part of the energy transition to ensure that the

electricity supply remains secure and affordable.

Their expansion must take account of the changed

spatial distribution of electricity producers and

consumers and the more volatile feed-in profiles

of renewable energies. Among other things, expan-

sion of the grid infrastructure can also significantly

improve trade capacities with Germany’s neigh-

bouring countries. The acceleration measures in

grid expansion over the last three years are now

having an effect. By the end of 2024, with more

than 1,700 approved kilometres the Federal Gov-

ernment expects a further increase in approvals

compared to 2023 – almost a six-fold increase com-

pared to 2021. In total, the construction of new

extra-high-voltage lines with a length of almost

1,700 km began last year – more than five times

as many kilometres as in 2021 (cf. Figure 11). The

costs arising from the necessary expansion of the

New approvals for onshore wind power

Route kilometres under constructionNew approvals for onshore wind power Approved route kilometres

2021 2022 2023 2024*

Kilometres

Grid expansion

400

800

1.200

1.600

2.000

1,379

1,739

607

1,628304 481 630

321

1,000

2,000

3,000

4,000

5,000

6,000

20242023202220212020201920182017

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4Q1 Q2 Q3 Q4

Figure 11: Accelerating the approval process for the expansion of renewable energy sources

and grid infrastructure

Source: In-house data, Federal Network Agency. *Status: Q3 2024 with a forecast for Q4 2024.

58 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

grid are also reflected in rising grid fees. At the

same time, the expansion of the grid serves to cut

the costs associated with congestion management,

thus having a positive impact on grid fees. In the

medium and long term, therefore, the expansion

of the grid will also help to reduce the burden on

electricity consumers. In order to counteract high

electricity costs, the Federal Government is exam-

ining measures aimed at reducing the cost burden

on grid users caused by the initial increase in elec-

tricity grid fees as a result of the grid expansion.

84. For an efficient energy system based on renew-

able energies, it will be necessary to strengthen

system-supporting incentives in the electricity

market design and to make the electricity system

significantly more flexible in the years to come.

This will help to reduce system costs. At the same

time, the advantages of renewable energies can

be realised with respect to their contribution to

lowering electricity exchange prices and avoiding

CO2 emissions. An effective mechanism to secure

sufficient available controllable capacities (power

plants, storage and flexible loads) is essential in

order to complement the volatile generation struc-

ture of renewable energies as cost-effectively and

reliably as possible. Last but not least, financing the

energy transition requires a stable, forward-look-

ing regulatory framework. The Federal Govern-

ment has addressed these aspects in the work of

the Climate-neutral Electricity System Platform,

with preliminary work on the capacity mecha-

nism, as well as in the Roadmap for System Stabil-

ity (cf. table entries no. 46 et seq.). With the Act to

Restart the Digitalisation of the Energy Transition,

the Federal Government has reactivated the roll-

out of smart metering systems so as to intelligently

link electricity generation and consumption and

to enable more efficient consumption and more

favourable electricity tariffs through increasing

flexibility (cf. AER 2024, Item 122).

85. In Germany, there is also a particular focus

on ramping up the hydrogen economy for the

decarbonisation of industrial processes and as an

additional option for making the electricity sys-

tem more flexible. On the one hand, this calls for

an efficient infrastructure, for which the Federal

Government has laid the foundations with the

hydrogen core network, the associated financing

concept and the integrated network development

planning for gas and hydrogen, among other

things. On the other hand, there is the issue of the

availability of competitively priced hydrogen, both

from domestic production and through imports

from partner countries with favourable hydrogen

production costs. The import strategy for hydro-

gen and hydrogen derivatives describes the frame-

work for this. Future activities must be geared

towards significantly increasing and accelerating

the development of hydrogen production, import

and storage capacities.

Box 5: International energy and climate policy negotiations

The key results of the negotiations at the 29th Climate Change Conference (COP 29) in 2024 are the resolu-

tions on 1) the New Collective Quantified Goal (NCQG) and 2) carbon markets (Article 6). The NCQG aims to

provide and mobilise at least USD 300 billion from public and private funds for developing and emerging coun-

tries by 2035 and places an even stronger emphasis on private sector services. The NCQG decision also expands

the donor group. After almost ten years, negotiations on Article 6 of the Paris Agreement have also been final-

ised, which allows for both cross-border carbon markets to support global climate goals as well as for support

for host countries and thus contributions to climate financing. The decision sets an important framework for

projects, broader cooperation approaches and creates the legal basis for emissions trading systems.

→

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 59

International progress was made in decarbonising the energy sector as part of the G7 negotiations under the

ITA Presidency and the G20 negotiations under the BRA Presidency in 2024. For the first time ever, the G7

agreed on a concrete time horizon for phasing out coal in the first half of the 2030s or within a timeframe

compatible with the 1.5°C limit. The G7 also committed to pursuing concrete steps to operationalise the COP28

decisions, including tripling global renewable energy capacity, doubling energy efficiency improvements by

2030, and moving away from fossil fuels and accelerating carbon management technologies, particularly in

sectors that are hard to decarbonise. Particular emphasis was placed on expanding grids and storage facilities,

including a G7 contribution to a six-fold increase in global storage capacities to 1.5 TW by 2030. The G7 also

committed to reducing their methane emissions arising from the extraction, transport and use of fossil fuels

by 75% by 2030. In particular, the G20 pledged to develop ambitious climate plans (NDCs) covering all eco-

nomic activities and greenhouse gas emissions in line with the 1.5° C target and to submit them by COP30.

Germany is also significantly involved in a number of specific initiatives on an international level, such as the

Powering Past Coal Alliance (PPCA), an informal association of countries, companies and organisations that

supports the global phase-out of conventional coal-fired power generation. At COP29, the PPCA launched its

“No New Coal” pledge, which encourages countries to commit to not building new coal-fired power plants; in

this context, Australia declared the end of its plans to build new plants.

Moreover, Germany’s more than 40 bilateral partnerships on climate and energy enable structured energy and

climate policy dialogue to take place at government level with industrialised, emerging and developing coun-

tries worldwide that are striving to transform their energy supply.

RENEWABLE ENERGY

43. Solar Package I

The package includes measures to accelerate the expansion of photovoltaics (PV). It focuses on the entire range

of PV in practice, from small systems on balconies to large ground-mounted systems via systems on the roofs

of detached houses, apartment blocks and factory buildings. But it also contains important innovations for the

energy transition with regard to other renewable energies, electricity storage and electricity grids. In the future,

it will be much more attractive and easier for citizens and companies to install PV systems and make use of solar

energy. The provisions of Solar Package I came into force in May 2024 and have already been applied since then,

unless they are still subject to approval by the European Commission under state aid law.

44. Updating of the Site Development Plan

The Site Development Plan is currently being updated by the Federal Maritime and Hydrographic Agency. The

plan contains the specifications for expanding offshore wind energy up to and including 2037. It drives forward

an ambitious expansion path and continues the previous accelerated expansion path in such a way that the stat-

utory expansion target of 40 gigawatts in 2035 will be exceeded. For the first time ever, the draft also contains a

visualisation of the eligible area for achieving the long-term expansion target of 70 gigawatts.

→

60 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

45. Accelerated authorisation for renewable energies and electricity grids (implementation of the revised

Renewable Energy Directive (RED III))

The provisions of RED III on accelerating permitting procedures in the area of renewable energy and electricity

grids are to be implemented through several bills. All bills are currently in the parliamentary process:

In the area of offshore wind energy, the designation of acceleration areas in the Site Development Plan is to be

regulated, among other things. The permitting procedures for projects in acceleration areas and for electricity

grids in so-called infrastructure areas are to be adapted and the execution of environmental impact assessments,

FFH impact assessments and species protection assessments is to be simplified in accordance with the require-

ments of the EU Directive.

The designation of fast-track areas for onshore wind turbines and solar energy is to be regulated, thus allowing

projects in these areas to be authorised in a simplified and accelerated procedure.

As regards geothermal energy, heat pumps and heat storage, RED III is to be implemented with the Geothermal

Energy and Heat Pumps Act (GeoWG) and the amendment to the Water Resources Act (WHG). The GeoWG is

also intended to contain far-reaching simplifications and accelerations for the authorisation procedures under

mining and water law.

ELECTRICITY MARKET

46. Electricity market design of the future

The new electricity market should become more flexible as fast as possible so that electricity consumers can

benefit better from the increasingly favourable electricity prices when there is a lot of wind and sun (GI meas-

ure No. 42a). Making the electricity market more flexible also reduces the costs of building controllable and

renewable capacities. To achieve this, all major obstacles on the supply and demand side are to be identified and

removed in a corresponding process with stakeholders. The instruments that can contribute to flexibilisation

include dynamic electricity tariffs and more flexible grid fee structures. The Federal Network Agency is respon-

sible for making adjustments to the grid fee system. In its Growth Initiative (GI measure No. 42b), the Federal

Government has agreed that the subsidisation of renewable energies should be phased out with the end of coal-

fired power generation. The expansion of new renewable energies is to be switched to investment cost support

(separate capacity mechanism), in particular to allow price signals to have a distortion-free effect. At the same

time, a high expansion dynamic must be maintained so as to reliably achieve the targets set out in the Renewa-

ble Energy Sources Act (EEG) and to obtain more cheap electricity as quickly as possible. As a result, even greater

attention will be paid to cost efficiency and market integration. In this context, the options presented as part of

the Climate-neutral Electricity System Platform will be examined and taken into account in the decisions made.

The Federal Government has agreed on the introduction of a capacity mechanism (GI measure No. 42c) to ensure

that the electricity supply remains at its usual high level in the future. The capacity mechanism is to be designed

in such a way that it is technology-neutral and market-based, so that all controllable capacities, such as power

plants, storage facilities and flexible loads, can compete.

→

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 61

→

ELECTRICITY GRIDS

47. Speeding up grid connection

With the amendment to the Energy Industry Act, as approved by the Cabinet on 13 November 2024, the Federal

Government proposed new regulations on grid connection procedures in the area of power distribution net-

works.

The measures developed in the industry dialogue “Acceleration of grid connections” should enable generation,

consumption and energy storage systems to be connected to the electricity distribution grids more quickly and

easily. The transparency of available grid connection capacities is to be increased and a standardised framework

for reserving grid connection capacity created. The measures also aim to make the grid connection process more

reliable, standardised and digital. The possibility of concluding flexible grid connection agreements is expressly

provided for. This will limit the feed-in from installations to a certain value in order to connect installations to

existing grid connection points that would not be available without a restriction on feed-in capacity or would

only be available if the grid were expanded further.

48. Package for the further development of the certification procedure for electricity generation plants

and storage facilities (certification package)

The previous verification procedure (certification procedure) for the minimum technical requirements for power

generation plants and storage facilities has been modernised and further developed for the mass market. Their

connection to the electricity grid will be significantly accelerated. At the same time, system security aspects are

also considered. The introduction of a mandatory register for unit and component certificates accessible via the

Internet (www.zerez.net) lays the foundation for digital processes in the grid connection procedure. The imple-

mentation of the certification package was finalised with the promulgation of three ordinances in May 2024 and

corresponding amendments to the Energy Industry Act.

49. Confirmation of the network development plan (first climate-neutral grid), legal anchoring in the

Federal Requirements Plan Act

The current network development plan was confirmed by the Federal Network Agency on 1 March 2024. For

the first time ever, it maps the transport requirements for a climate-neutral energy system in 2045. It includes a

large-scale expansion of the electricity transmission grid, with over 7,000 km of new power lines being added to

it. An amendment to the Federal Requirements Plan Act will enshrine the need for the power lines in law. This

will establish an overriding public interest and the necessity of the expansion projects from an energy indus-

try perspective with binding effect, and it will also serve to speed up the planning process. To ensure the timely

expansion of the grid, two high-voltage direct current lines – components of the so-called NordOstLink and

Rhein-Main-Link – were already incorporated in the legislation in July 2024.

SECURITY OF SUPPLY

50. Roadmap for System Stability

The roadmap shows how operation of the system can be made secure and robust when based completely on

sources of renewable energy. The “’Roadmap for System Stability” was developed with the broad participation

of the industry and the close involvement of the Federal Network Agency and was adopted by the Federal Gov-

ernment in December 2023. The roadmap identifies all the processes and further process developments that are

relevant to system stability, names the responsible stakeholders and specifies the deadline for implementation.

The “System Stability Forum”, headed by the Federal Ministry for Economic Affairs and Climate Action (BMWK),

which supports and coordinates implementation, was launched in April 2024.

62 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

→

51. Amendment to the Gas Storage Act

The Gas Storage Act sets out a multi-stage process in which storage is initially filled in a market-based way and,

if necessary, incentivised by the market area manager. The Act defines suitable instruments for storage manage-

ment, which have been made more efficient and market-friendly as a result of this amendment. The filling level

targets were met in the 2023-2024 storage year. The storage level targets set for 1 October and 1 November

were also met in the 2024-2025 storage year.

52. Commissioning of the liquefied natural gas terminals

Since 2022, terminals have been built at five German coastal locations to safeguard the supply of energy by

allowing liquefied natural gas to be brought ashore. The terminals in Wilhelmshaven 1 and Brunsbüttel have

been in operation since the winter of 2022-23. The Mukran terminal has been in regular operation since Sep-

tember 2024. The remaining sites in Stade and Wilhelmshaven 2 are scheduled to go into operation in 2025. The

terminals are vital to ensure the resilience of the supply of gas to Germany and Europe, since they prevent supply

bottlenecks in the event of an increase in demand or the failure of other supply routes and enable energy sup-

plies to be diversified.

53. Securing and diversifying gas supply, including gas storage certification

The Federal Government has conducted a dialogue with gas importers regarding support measures for diversify-

ing and securing gas supplies and has sensitised gas importers to the need to diversify the countries of origin of

the gas they import. Where necessary, the Federal Government provides support for specific gas projects. Since

last year, all existing gas storage operators have been certified. The requirements continue to apply after initial

certification has been completed and must be fulfilled by the operators in the event of any changes. This is a

permanent way of preventing the gas supply from being jeopardised by third parties exercising control or other

rights over gas storage facilities.

HYDROGEN

54. Development of a hydrogen core network

With two amendments to the Energy Industry Act, the Federal Government has created the legal framework for

developing a hydrogen core network as the basic framework of the hydrogen infrastructure in order to connect

key hydrogen locations, such as large industrial centres, storage facilities, power plants and import corridors.

Based on this, the transmission system operators submitted an application for the core network to the Federal

Network Agency for review, and it was approved by the Federal Network Agency on 22 October 2024. Accord-

ing to this, around 9,000 kilometres of hydrogen pipelines are to be gradually put into operation across Germany

between 2025 and 2032. The hydrogen pipelines in the core network are to be paid for entirely by the private

sector through user charges. The scenario- and demand-orientated further development of the core network

will take place every two years as part of the integrated gas and hydrogen network development plan. Should

demand change in the course of the review and confirmation of core grid projects by the Federal Network

Agency, the planned commissioning of individual projects can be postponed until the end of 2037.

55. Hydrogen Acceleration Act

Passed by the Cabinet on 29 May 2024, the Hydrogen Acceleration Act aims to create the legal framework for

rapidly ramping up the hydrogen economy. The Act accelerates, simplifies and digitalises the relevant planning,

approval and procurement procedures for infrastructure projects that produce, store or import hydrogen.

Furthermore, the projects covered by the Hydrogen Acceleration Act are in the overriding public interest. As a

result, they are of particular importance when the approval authorities have to weigh up decisions.

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 63

→

56. Import strategy for hydrogen

The import strategy for hydrogen and hydrogen derivatives adopted in July 2024 outlines a reliable framework

for international supply relationships and thus complements the Federal Government’s commitment to develop-

ing the domestic market. Among other things, it includes ensuring a resilient supply of sufficient hydrogen and

hydrogen derivatives ass well as the parallel development of import infrastructures for pipeline and ship trans-

port. The aim here is to achieve a reliable supply of green, sustainable hydrogen and its derivatives in the long

term. To enable the necessary rapid hydrogen ramp-up, the import strategy also includes low-carbon hydrogen

and its derivatives in meeting demand. In recent years, explicit hydrogen agreements have been concluded with

numerous partner countries.

ENERGY EFFICIENCY

57. Amendment to the “Federal Funding for Energy and Resource Efficiency” (EEW)

The “Federal Funding for Energy and Resource Efficiency” (EEW) is the broad-based funding programme for

decarbonising industry and commerce. The EEW was launched in 2019 and has experienced strong growth since

then. Besides investments in energy and resource efficiency, projects for electrification and the production and

use of hydrogen are also funded.

The amended EEW funding guidelines came into force on 15 February 2024. The amendment simplified the

application process and improved funding conditions.

58. Municipal heat planning

A core objective of heat planning is to determine the most cost-effective way to achieve reliable and climate-

neutral heat supply at the local level. To achieve this, the states have been obliged by the Heat Planning Act,

which entered into force on 1 January 2024, to draw up comprehensive heat plans for their territory by 30 June

2028 at the latest; the Länder are allowed to transfer this obligation to the municipalities. The Heat Planning Act

also sets targets for the proportion of renewable sources of energy and/or unavoidable waste heat in heat gener-

ation for new and existing heating networks; by 2045, every heating network is to be supplied entirely with heat

from renewable energies and/or unavoidable waste heat. The Federal Government is supporting the Länder and

municipalities with advice and funding. It is providing the Länder with financial resources totalling €500 million

so they can draft their initial heating plans for a limited period from 2024 to 2028 via an increased federal state

share of VAT.

59. Amendment to the “Federal Funding Programme for Efficient Buildings” (Individual Measures)

The new Federal Funding Programme for Efficient Buildings – Individual Measures (BEG EM) came into force

on 1 January 2024.

With the BEG EM, the installation of new climate-friendly heating systems is subsidised by KfW and other indi-

vidual measures for energy-efficient refurbishment by the Federal Office for Economic Affairs and Export Con-

trol (BAFA). Individual energy refurbishment measures include, for example, replacing windows, insulating the

building envelope or optimising the heating system. Subsidies can be applied both for residential and non-res-

idential buildings (such as commercial or office buildings) or buildings with mixed use. For the first time ever, a

subsidy of 30% is granted for households with low incomes (under €40,000) to help them replace heating sys-

tems.

64 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

METHANE EMISSIONS

60. Methane emissions

As part of the international initiatives, Germany plays a leading role in reducing methane emissions. The Federal

Government supports the goal of reducing global methane emissions by 30% by 2030 and is contributing €320

million to the work carried out by the UNEP International Methane Observatory (IMEO) and the Climate and

Clean Air Coalition (CCAC). These initiatives improve the availability of methane data and apply targeted meas-

ures to reduce emissions in the energy sector. The new EU Methane Regulation, which came into force in August

2024, obliges operators of fossil fuel infrastructure to measure and report methane emissions and remedy any

leaks. The regulation is also being extended to include fossil fuel imports, which should reduce methane emis-

sions throughout the supply chain.

C.7 Industry: spurring on competitive-

ness and modernisation

(86) In Germany as well as in Europe, the economy

is facing major structural challenges, in particu-

lar the transition to climate neutrality, the digital

transformation, demographic developments and

a new geopolitical situation. This is accompanied

by great pressure to adapt. Significant, primarily

private, financial resources must be mobilised in a

short space of time to invest in new technologies,

infrastructures, processes and employee qualifica-

tions and to open up new growth markets. These

challenges are also emphasised by the IMF, the

Industrial production index (manufacturing and mining)

Production index for energy-intensive industries

2021=100

100

110

120

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Figure 12: Development of industrial production

Source: Federal Statistical Ofﬁce (Destatis), 2025.

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 65

OECD and the Draghi report. In view of this, pro-

viding the right impetus for the industrial sectors

and strengthening innovation are essential.

87. The path to achieving greater competitiveness

while at the same time transitioning to a decar-

bonised economy is an enormous challenge, par-

ticularly for the manufacturing industry. Overall,

the German manufacturing industry has proven

to be resilient in the numerous crises of recent

years and – unlike in many other advanced econ-

omies – continues to account for a high and com-

paratively stable share of gross value added in the

economy as a whole at around one fifth (2024:

19.7%). However, German industrial production

has been on a downward trajectory since 2018.

Since 2022, there have been significant declines

in production in energy-intensive sectors in par-

ticular; they are struggling with energy costs that

remain structurally high in an international com-

parison.

Global demand for industrial goods is sluggish.

Core industrial sectors, such as the German auto-

motive industry and the entire energy-inten-

sive industrie, are currently performing weakly.

Although gross value added in the manufacturing

sector has also been declining since early 2023,

it has performed significantly better than the

production index in recent years. For example,

adjusted for price, seasonal and calendar effects,

gross value added in the third quarter of 2024

fell by only 2.6% compared to the pre-crisis year

of 2019, while the production index was 11.6 %

lower. The divergence between gross value added

and the production index can be attributed in part

to methodological differences in the way the data

were recorded. However, it is likely to be largely

due to a change in industrial production struc-

tures, among other things as a result of a shift in

production towards goods with a high proportion

of value added – particularly in the automotive

industry –, a decline in the proportion of interme-

diate inputs, and a disproportionate rise in prod-

uct-related services (R&D, financing, marketing,

etc.)5

88. Competitive and predictable energy costs are a

key factor to ensure sustainably strong value cre-

ation in Germany as an industrial location. The

energy-intensive primary industries in particular

not only play a significant role for prosperity in

Germany, but also contribute to the resilience of

German and European value chains. The Federal

Government is thus also committed to maintain-

ing energy-intensive industries in Germany and

adopted the electricity price package in Novem-

ber 2023 to strengthen the competitiveness of

the industry. The measures agreed in this pack-

age – the temporary reduction in electricity tax

for companies in the manufacturing sector as

well as agriculture and forestry to the minimum

level permitted by the EU and the expansion and

extension of electricity price compensation – have

already been implemented. At the same time, the

Federal Government is focusing on further meas-

ures to reduce grid charges (cf. Chapter C.6).

89. The Federal Government is also improving

the conditions required to decarbonise indus-

try. Among other things, it supports companies

in switching production and ramping up clean

tech, for example by cushioning market risks and

cost differences between conventional and cli-

mate-friendly processes or with investments and

technology development in the area of CO2 cap-

5 According to the ifo Institute (2024), actual production in the manufacturing industry is also underestimated, because newly developed prod-

ucts are underreported and only sales from their own products are measured. On the other hand, a decline in industrial production could also

be reflected in gross value added, with a time lag if the service business is linked to the sale of industrial goods in the form of services (IfW Kiel

2024).

66 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

ture, storage and utilisation (CCU and CCS). At the

same time, the Federal Government is supporting

the establishment of lead markets. At the EU level,

the Federal Government has also campaigned for

a strong European superstructure that boosts the

ramp-up of clean tech production and supports a

circular economy.

90. In addition, the Federal Government is making

targeted investments in key technologies such as

hydrogen, battery cell production, microelectron-

ics and communication technologies as part of

innovative and large-scale IPCEI projects (“Impor-

tant Project of Common European Interest”). In

recent years, important settlement projects and

major investments have been initiated. Besides

investment projects in the fields of microelectron-

ics and hydrogen, investments in artificial intel-

ligence, robotics and automation, medical tech-

nology and biotechnology are also of great signifi-

cance.

91. The digital transformation of the economy

can make a significant contribution to increasing

productivity and tapping into new added value.

In terms of digital innovation, German industry

is well positioned compared to other countries.

However, the spread of new digital technologies in

companies is slow. Accompanying measures can

help to better exploit the potential in Germany

and Europe. This is why the Federal Government

is supporting the development of data-based

ecosystems and the application and dissemina-

tion of digital solutions, e.g. via Manufacturing-X,

high-performance cloud technologies or robotics

solutions. At the same time, the Federal Govern-

ment is using its “Action Plan on Quantum Tech-

nologies” to drive forward application-orientated

technology development with the long-term goal

of achieving European technological sovereignty.

In the process, a closely networked ecosystem

characterised by startups, SMEs and academic

research is being established.

DECARBONISATION AND COMPETITIVENESS

61. The Net Zero Industry Act (NZIA)

The NZIA came into force on 29 June 2024 as part of the EU’s Green Deal Industrial Plan and, as it is an EU reg-

ulation, it is directly applicable. It aims to accelerate the production ramp-up of net zero technologies (includ-

ing solar, wind, batteries, heat pumps and geothermal energy, electrolysers, biomethane technologies, CCS and

electricity grid components). The overall aim is that the EU’s manufacturing capacity of the strategic net-zero

technologies should cover at least 40% of the Union’s annual deployment needs by 2030. Among other things,

the NZIA provides for the Member States to recognise specific projects for the production of net-zero technolo-

gies as so-called “strategic projects” and to prioritise them in such a way as to facilitate their accelerated imple-

mentation (in particular by means of granting them priority status and shorter deadlines in the approval process).

The NZIA is also introducing the instrument of so-called “acceleration valleys” for net-zero technologies. These

valleys can be used to create clusters of industrial activities related to net-zero technologies in order to make the

EU more attractive as a location for net-zero technology manufacturing activities and to further streamline the

administrative procedures developing corresponding manufacturing capacities.

→

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 67

62. Developing Green Lead Markets

On 22 May 2024, the concept entitled “Lead markets for climate-friendly raw materials” (so-called “green lead

markets”) was presented. Green lead markets complement other transformation instruments for industry and

reduce the need for subsidies in the long term. The concept focuses on the steel, cement and chemical indus-

tries. It includes definitions for climate-friendly raw materials that can be used to market and procure raw mate-

rials as climate-friendly. The definitions form the basis for measures such as labelling and labels as well as mini-

mum standards and quotas for the CO2 emission intensity of climate-friendly raw materials.

63. Federal Funding Guideline for Industry and Climate Action (BIK)

Launched at the end of August 2024, the BIK promotes both investments and technology development in decar-

bonisation and carbon capture and utilisation (CCU)/carbon capture and storage (CCS), including negative emis-

sions, with two funding modules. This has created a funding instrument for industrial SMEs. The funding guideline

also focuses on issues relating to maintaining the location and developing employment. According to current plan-

ning, around €3.3 billion are available for the funding programme for the entire term until 2030.

64. IPCEI Hydrogen

The IPCEI Hydrogen supports integrated projects along the entire hydrogen value chain, from the production of

green hydrogen and infrastructure to its use in industry and for mobility through state funding. In July 2024, 22

German projects in the field of hydrogen production and infrastructure from the Hy2Infra wave were awarded

funding. Furthermore, several individual projects were approved under the IPCEI in line with the EU Climate,

Energy and Environmental Aid Guidelines (CEEAG) and, in particular, funding decisions were issued for the large-

scale projects to decarbonise the steel industry.

65. Climate action agreements

Climate action agreements support emission-intensive industrial companies in investing in and operating cli-

mate-friendly production facilities that would otherwise not be profitable. They are awarded competitively in an

innovative auction process. The programme protects companies against price risks and offsets additional costs

between conventional and climate-friendly processes for a transitional phase. In the climate-friendly moderni-

sation of industry, the instrument of climate action agreements also addresses issues of preservation of the loca-

tion and development of employment. The first climate action agreements were concluded with 15 companies

in autumn 2024 and will run for 15 years. The specific amount of funding for CO2 savings through the conversion

of production differs between the projects and depends on how the prices of energy sources and certificates in

EU emissions trading develop in the future. The maximum funding volume approved for the first round is up

to €2.8 billion. This amount represents the upper limit of the hedging of price risks associated with the climate

action agreements. Based on the price developments currently forecast, it is to be expected that the actual fund-

ing will be significantly lower. The preparatory process for the second round of climate action agreements was

launched at the end of July 2024.

66. Extending the electricity price package to relieve the burden on energy-intensive industries

Internationally competitive energy costs are a key factor for achieving long-term strong value creation in the

industrial nation that is Germany. The electricity price compensation, which was previously limited until 2028

and has already been extended as part of the electricity price package, will be extended until 2030. This will allow

the sectors entitled to aid to be relieved of a total of up to €3.9 billion annually. The measure will relieve the bur-

den on energy-intensive industries.

→

68 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

67. Support for German shipyards in converter platform construction

Converters are a core component for efficiently transporting electricity over long distances. The construction

of offshore converter platforms by German shipyards is an opportunity in terms of industrial and energy pol-

icy. So as to cushion the financial risks for manufacturers in these large-scale projects, the Federal Government

has launched a special guarantee programme to construct converters (on-shore) and converter platforms (off-

shore) with the states initially affected. Together with the release of additional areas of the naval arsenal in Ros-

tock-Warnemünde, important prerequisites for the production of converter platforms have been created.

68. Draft amendment to the Carbon Dioxide Storage Act/Carbon Management Strategy (CMS)

As part of its aim to decarbonise industry, the Federal Government is tackling the issue of how to deal with emis-

sions that are difficult or impossible to avoid (e.g. cement and lime production as well as waste incineration) in

Germany. In this context, the capture, storage and utilisation of CO2 (CCS and CCU) will play a role.

To create legal certainty for CCS/CCU applications in Germany, the Carbon Dioxide Storage Act is to be updated

and legal uncertainties regarding the construction of a CO2 infrastructure are to be resolved. A corresponding

bill from the Federal Government has already been initiated. Based on the key points of the CMS adopted by the

Cabinet in May 2024, the Federal Government has also already largely developed a carbon management strategy

that identifies the areas of application for CCS and CCU and sets out measures to ramp up these technologies.

One focus of the CMS is on creating CO2 infrastructures.

CIRCULAR ECONOMY

69. Ecodesign for Sustainable Products Regulation (ESPR)

The Ecodesign for Sustainable Products Regulation (ESPR) came into force in the summer of 2024. The ESPR is

gradually phasing out the previous Ecodesign Directive and aims to make sustainable products the norm in the

EU. Its scope covers all physical products with the exception of food and feed, human and veterinary medicinal

products, living plants and animals and vehicles. The ESPR per se does not contain any ecodesign requirements,

but it sets the framework for the adoption of future product regulations by determining which product aspects

can be improved with specific requirements. In this respect, there will only be a change in the legal situation for

the products affected by ecodesign with future product regulations. The ESPR also contains provisions regarding

the digital product passport, sustainable public procurement and a ban on the destruction of unsold consumer

goods as well as for a future ecodesign label (in addition to the existing EU energy label).

The ESPR reinforces Europe’s role as a lead market for climate-friendly raw materials and products and offers

opportunities for competitiveness and innovation. The Federal Government particularly welcomes the compro-

mise reached on the ban on destruction and the strong anchoring of the circular economy and lightweight con-

struction.

70. National Circular Economy Strategy

With the strategy adopted by the Cabinet on 4 December 2024, the Federal Government defines goals and meas-

ures for a resource-conserving circular economy. The aim is to leverage the considerable innovation and eco-

nomic potential of a circular economy and support the achievement of the goals of the Climate Change Act and

the German Sustainability Strategy. A secure supply of raw materials and increased resilience of German compa-

nies are further key concerns of the National Circular Economy Strategy. The development of the National Circu-

lar Economy Strategy was accompanied by an intensive two-year participation process with businesses and civil

society in various formats, such as round tables and online dialogues.

→

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 69

THE DIGITAL TRANSFORMATION

71. IPCEI Microelectronics and Communication Technologies

The Federal Government is pursuing its goal of maintaining and expanding the semiconductor industry in Ger-

many and the European Union. As part of the second IPCEI in the fields of microelectronics and communication

technologies, Germany is involved in 31 national projects in eleven countries. The firms are investing more than

€10 billion. A total of around €4 billion is being provided jointly by the Federal Government and the governments

of the Länder. By the end of 2024, 29 funding decisions had been issued

72. Funding for innovative investment projects under the European Chips Act

As part of the European Chips Act (cf. AET 2024, Item 64), the Federal Government is subsidising, for example,

the establishment of TSMC in Dresden by providing up to €5 billion in funding. The Federal Government also

wishes to promote further investments.

A funding announcement to promote innovative investment projects within the framework of the European

Chips Act. was issued on 18 November 2024. The semiconductor ecosystem in the European Union is to be

comprehensively reinforced. This is to be achievedthrough investments in the establishment or expansion of

large-volume production for semiconductors and other activities in the semiconductor supply chain or the semi-

conductor value chain, among other things the security of the supply of semiconductors and the resilience of the

European value chain are to be increased as well. Companies have until 10 January 2025 to submit outlines for

corresponding projects

73. Manufacturing-X

Industry 4.0 urgently needs a shared, open data ecosystem, one in which everyone involved in the value chain

can expect safety, sovereignty and interoperability when sharing their product and manufacturing data. This will

enable new industrial applications and business models to be established. The measure adapts the Catena-X pro-

ject from the automotive industry for other sectors, such as mechanical engineering, chemicals and aviation. Ten

projects were launched in 2024 and will work together extensively until 2026. The Federal Government is pro-

viding around €150 million for Manufacturing-X until 2026. The international networking of Manufacturing-X is

already being actively promoted.

74. IPCEI Cloud

Industry’s requirements for cloud infrastructure are constantly increasing. Businesses and research institutions

from twelve EU Member States, including Germany, are in the process of developing a new type of decentralised

software infrastructure for real-time data processing as part of the IPCEI Cloud by 2026-27. By 2028, the Federal

Government will have provided a total of up to €750 million. The digital infrastructure is to be operated by sev-

eral providers and will reduce technological lock-in effects. The German flagship projects began their develop-

ment work in 2024. The stabilisation of this initiative is being driven forward across Europe under the new “8ra”

brand.

75. Boosting AI-based robotics

As part of the IPCEI Cloud, the RoX lighthouse project was launched in the autumn of 2024 with funding of

around €29 million. The aim is to integrate the application field of robotics into the IPCEI Cloud and develop an

ecosystem for AI-driven robotics. By 2027, open source functional modules will be developed that will enable

robotics users to create individually optimised overall solutions in the fields of logistics and production. Many

renowned robotics and technology companies are involved in the project.

→

70 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

C.8 Foreign Trade and Investment:

diversifying trade relations, increasing

resilience

92. For a very long time, Germany benefited from

a favourable global environment in which world

trade flourished under multilateral rules. In recent

years, however, the global economic environment

has changed considerably. The ongoing Russian

war of aggression against Ukraine and the global

supply chains disrupted by the COVID-19 pan-

demic and conflicts have presented the German

export industry with enormous challenges. Since

the global financial crisis of 2008, the share of

international trade in global GDP has stagnated (cf.

Figure 13). At the same time, the growing global

race for technological leadership in digital and key

industrial technologies is increasing international

pressure to innovate and compete in sectors such

as ICT, the automotive industry, steel and mechan-

ical engineering, in which individual non-mar-

ket economies are increasingly gaining market

share – also as a result of numerous distortions

of competition. These far-reaching changes pose

fundamental challenges to the international com-

munity. Geopolitical tensions and increasing pro-

tectionism are challenging the multilateral trading

system and contributing to the fragmentation of

the global economy. The Federal Government is

taking decisive and pragmatic action to counter

these developments. After all, the promotion of

international trade, combined with effective pro-

tection against unfair trade and subsidisation prac-

tices, is and remains an essential basis for growth,

employment and prosperity in the EU. Given this,

the Federal Government supports European Com-

mission initiatives and measures that foster inter-

national trade, open up new partnerships, take

account of the challenges to economic security

and strengthen sustainable development.

From 2024 onwards, the Robotics Institute Germany will provide an internationally visible network for cut-

ting-edge research in Germany. Research into AI-based robots will be boosted through the formation of research

clusters that provide interfaces for the industries. Moreover, a joint research infrastructure that includes soft-

ware, research data, laboratories and learning and test environments will be established. A training and further

education programme is being developed to train specialists. The project was launched on 1 July 2024 and will

run, initially, run for four years. Funding of around €20 million will be provided to 16 renowned universities and

non-university research institutions for the entire duration of the project.

76. Strategy for autonomous driving in road traffic

For the German automotive industry and mobility as a whole, automated and connected driving is an important

driver for greater innovation, investment and growth. The strategy published in December 2024 aims to make Ger-

many a hub of innovation and production for autonomous driving by 2030 and pave the way for the regular opera-

tion of autonomous driving. The main areas of application are public transport and freight transport.

77. Specialist programme “DNS of sustainable mobility. Digital - Sustainable – System-capable”

(former specialist programme “New vehicle and system technologies”)

Key milestones have been reached in the field of AI for automated driving. The AI project family completed in

2024 has laid the successful foundation for the safe use of classic AI methods. Since January 2024, the lighthouse

project “nxtAIM”, which deals with methods of generative AI, has been funded to the tune of €27 million. The

content of the programme was also restructured in December 2024, and the focus placed on digitalisation, sus-

tainability and system capability.

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 71

Box 6: G7 and G20 summits 2024

In 2024, while it was under the Italian Presidency, the G7 sent a strong signal of support for Ukraine by pledg-

ing a loan of USD 50 billion. Moreover, the group reaffirmed its commitment to peace in the Middle East and

cooperation with the Global South, to increased economic resilience, and to an accelerated energy transition

as the key to climate action and energy security (cf. Box 5).

The G7 committed to a fair trading system, the reform of the World Trade Organisation (WTO) as well as the

further development of the Hiroshima AI Process.

Canada assumed the G7 presidency on 1 January 2025.

The G20 summit was held in Rio de Janeiro on 18 and 19 November 2024. The Brazilian presidency focused on

the issues of social inclusion, energy transition and sustainable development, and the reform of global govern-

ance. The results of the summit included a commitment to the United Nations Charter and territorial integrity

as well as the establishment of the “Global Alliance against Hunger and Poverty”.

The G20 committed to the global sustainability goals, the Paris Agreement, the 1.5° C target and an acceler-

ated global energy transition, as well as the G20 Compact with Africa initiative for better investment condi-

tions launched under the German G20 presidency in 2017.

On 1 December 2024, South Africa took over the G20 presidency for 2025.

Percent

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2023

Figure 13: Imports of goods and services worldwide as a percentage of GDP

Source: World Bank, World Development Indicators.

72 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

93. The Federal Government advocates for an

open, rules-based and sustainable EU trade pol-

icy to counteract the fragmentation of the global

economy and strengthen EU competitiveness and

economic security through the diversification of

EU trade relations. With the aim of strengthening

the multilateral trading system, the Federal Gov-

ernment supports the reform of the WTO. More

than half of all EU exports to third countries are

handled exclusively on the basis of WTO law. This

includes important export markets such as the

USA, China and India. In addition, plurilateral

agreements, that is to say agreements between a

limited number of WTO members that make pro-

gress on individual issues, are of particular impor-

tance. The Federal Government is focusing on the

timely entry into force of plurilateral agreements

that facilitate investment in development and

e-commerce.

94. At the same time, the Federal Government is

committed to pragmatically advancing an ambi-

tious bilateral EU trade agenda. New EU trade

agreements are essential for competitiveness, eco-

nomic security and resilience. They can make a

significant contribution to promoting diversifica-

tion through economic openness and thus reduc-

ing critical dependencies. At the same time, they

can also contribute to multilateral sustainability

goals. The Federal Government’s aim is to con-

clude the most comprehensive agreements pos-

sible with international partners, especially with

Latin America and the Indo-Pacific region (includ-

ing India and Indonesia) (cf. Figure 14). The Fed-

eral Government is in favour of so-called EU-only

trade agreements or advocates bringing forward

the EU-only parts of more comprehensive agree-

ments until the overall agreement is ratified. The

Federal Government argues for facilitating trade

in specific goods through smaller, WTO-compat-

ible agreements, thereby pragmatically building

bridges for international trade. In all these nego-

tiations, the Federal Government is committed to

meeting its partners on an equal footing and tak-

ing into account their interests – including those

of local value creation and sustainability. Through

trade-related development cooperation, the Fed-

eral Government also supports partner countries

in fully exploiting the benefits arising from trade.

A particular focus here is on supporting the Afri-

can Free Trade Area. The Federal Government is

also committed to the swift implementation of

the EU’s Global Gateway connectivity initiative

and, in particular, better integration of the private

sector into the initiative to establish fair and sus-

tainable partnerships with mutual benefits.

95. Trade defence instruments for comparable and

fair competitive conditions (level playing field)

constitute part of European trade policy. These

instruments include, in particular, anti-dumping

measures in the event of dumping by a manufac-

turer in a third country and anti-subsidy meas-

ures in the event of unauthorised subsidies or

subsidies requiring compensation being granted

by a third country. Furthermore, there are also

protective measures (safeguards) against sudden

and exceptional increases in imports. All three

instruments have their basis in WTO law. During

investigations, the European Commission takes

into account the interests of the Union, includ-

ing the – regularly conflicting – interests of users

and producers in the EU, and decides on trade

defence measures with the involvement of the

Member States, if need be. In the last few years,

the EU has also expanded its toolbox by adapting

the Enforcement Regulation so as to be able to

enforce EU trade interests and rights, even if the

WTO dispute settlement mechanism is not func-

tioning (cf. AER 2021, Box 15), the International

Procurement Instrument, the Foreign Subsidies

Regulation (cf. AER 2023, Item 165) and the Reg-

ulation on the protection of the Union and its

Member States from economic coercion by third

I. WIRTSCHAFTS- UND FINANZPOLITIK DER BUNDESREGIERUNG 73

Existing agreements* Negotiated agreements in the tratiﬁcation process* Ongoing negotiations* Paused negotiations/ratiﬁcations* No agreement*

European Customs Union, European Economic Area,

Overseas Countries and Territories

* Free Trade Agreement (FTA), Deep and Comprehensive Free Trade Agreement (DCFTA), Investment Agreement, Investment Protection Agreement, Enhanced Partnership and Cooperation Agreement (EPCA), Partnership and Cooperation

Agreement with Preference Element (PCA), Economic Partnership Agreement (EPA).

+ The agreements with Mexico and countries in eastern and southern Africa are currently being updated. An updated agreement with Chile is currently being ratiﬁed. The Deep and Comprehensive Free Trade Agreement with Georgia does not apply to

South Ossetia and Abkhazia.

In accordance with the ECJ ruling of 4 Oct. 2024 on the agreement with Morocco and its applicability to the Western Sahara, the validity of the agreement will only be maintained until 4 Oct. 2025.

Norway, Liechtenstein and Iceland are part of the European Economic Area; Turkey, Andorra and San Marino are part of the European Customs Union.

Existing agreement largely suspended by sanctions regime

Figure 14: EU free trade agreements

Source: In-house illustration based on European Council, 24 July 2024, among others https://circabc.europa.eu/rest/download/0e05d6f3-64f5-4661-ae0c-aefb68094d19; European Commission, 15 Nov. 2014 https://policy.trade.ec.europa.eu/eu-trade-

relationships-country-and-region/negotiations-and-agreements_en

74 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

countries (Anti-Coercion Instrument) (cf. AER

2024, Item 156). Some of these instruments are

already in use, and here, too, the Member States

must always be involved.

96. So as to specifically address security risks in

the economic and financial sector, the Federal

Government has increasingly focused on the topic

of economic security during this legislative period.

The aspect of economic security, such as risk

minimisation in trade and supply relationships

(de-risking), is also included in the Strategy on

China of the Gevornment of the Federal Repub-

lic of Germany. The European Commission has

presented the European Strategy for Economic

Security, the realisation and further development

of which into an economic security doctrine is

supported and actively shaped by the Federal

Government. To reduce dependencies on critical

raw materials, the Federal Government launched

the 2024 Raw Materials Fund, which supports

the long-term security of supply of critical raw

materials for Germany and the EU. Investment

screening also makes a significant contribution

to avoiding critical dependencies. This is why the

legal framework for German investment screen-

ing has been repeatedly revised in recent years. To

this end, the Federal Government will continue

to reinforce economic security and work together

with European and international interest and

value partners. It will continue to conduct joint

risk analyses to increase the security and resil-

ience of the German economy and the EU single

market.

97. Ultimately, a deeper internal market is essen-

tial for the competitiveness and resilience of the

EU, which is why cross-border investment and

innovation should be facilitated. This includes

improving law enforcement, simplifying the EU

regulatory framework and reducing unnecessary

bureaucracy without sacrificing any necessary

standards of protection, e.g. by removing obstacles

to the cross-border provision of services under the

law governing postings. Under the last EU Com-

mission (2019 – 2024), the internal market was

also made more crisis-proof and resilient in order

to ensure its functioning even in future, unfore-

seeable crises, which could, for example, lead to

disruptions in global supply chains.

98. The economic size of the internal market is

also an effective means of promoting climate

action internationally and creating fair compet-

itive conditions without penalising domestic

industries. Germany and the EU are relying on the

Carbon Border Adjustment Mechanism (CBAM)

to prevent the shifting of CO2 emissions and to

strengthen ambitious climate action. This prices

the CO2 emissions of certain energy-intensive

goods imported into the EU in the same way as

the EU Emissions Trading System. This counter-

acts the risk of shifting greenhouse gas emissions

on account of varying levels of climate policy-in-

duced costs (carbon leakage). At the same time, the

Carbon Border Adjustment Mechanism promotes

global climate action by encouraging companies

to introduce low-emission production methods

and incentivising third countries to introduce

appropriate carbon pricing. The Federal Govern-

ment is also campaigning at the European level

for a WTO-compliant equalisation of CO2 costs

for EU exporters in order to counteract price dis-

tortions in export markets with lower CO2 costs

(cf. also Growth Initiative and Box 1). At the same

time, the Federal Government is involved in the

Climate Club in areas such as the prevention of

carbon leakage. In order to incentivise innova-

tion and climate-friendly technologies and sup-

port the transformation in third countries as well,

the export credit guarantees, investment guar-

antees and guarantees for untied financial loans

have been brought into line with the 1.5 degree

pathway since November 2023 (cf. GCEE Annual

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 75

Report 2024, Item 158). As regards investment and

export credit guarantees, export transactions and

investment projects are categorised into three

climate categories (green, white and red), which

determine eligibility for cover and the conditions

of support. A total of 21.6% of the coverage vol-

ume secured with export credit guarantees that

fell under the climate test in 2024 was classified

as white and 78.4% as green. Of the coverage vol-

ume secured with investment guarantees that fell

under the climate test in 2024, 96.2% was classified

as white and 3.8% as green.

RULE-BASED TRADE AND DIVERSIFICATION OF TRADE RELATIONS

78. Reform of the WTO

The Federal Government supports the strengthening and reform of the World Trade Organisation. Of particular

note here is the restoration of a fully functional dispute settlement mechanism, modern rules on market-distort-

ing subsidies or the level playing field and the alignment of the WTO with the Paris Agreement and the sustaina-

bility goals of the United Nations 2030 Agenda.

At the 12th WTO Ministerial Conference (June 2022), a significant partial agreement was reached with the

so-called Fisheries Agreement aimed at enhancing the sustainability dimension by banning subsidies for illegal,

unregulated and unreported fisheries and for fisheries on overfished stocks. The negotiations have been contin-

uing since then, not least in order to include other forms of harmful subsidies, especially with a view to those

which foster overfishing and overcapacities in the fisheries sector. The customs moratorium on electronic trans-

fers, as extended at the last ministerial conferences, is also of great economic significance.

In plurilateral agreements, stakeholders agree on modern trade rules and thereby make progress in the reform

process. The following successes should be emphasised: At the 13th WTO Ministerial Conference (February

2024), agreement was reached on new regulations to facilitate trade in services among 72 WTO member states

with the so-called Joint initiative on Services Domestic Regulation. The Agreement on Investment Facilitation

for Development (IFD) has also been finalised and is supported by more than 120 WTO member states. This is

intended to create a framework to facilitate investment that will ensure better integration of developing coun-

tries into global investment flows and enhance the sustainability dimension of investments. The text negotiations

on a plurilateral e-commerce agreement (eJSI) were concluded in summer 2024; this is intended to facilitate

cross-border e-commerce and remove trade barriers for digitally provided services and transactions. Both agree-

ments are to be integrated into the WTO rules, which requires a consensus of all WTO member states.

79. Ambitious bilateral EU trade agenda

The Federal Government welcomes the entry into force of the trade agreement with New Zealand on 1 May

2024, the Economic Partnership Agreement with Kenya on 1 July 2024 and the Interim Trade Agreement with

Chile on 1 February 2025, as well as the political agreement on the EU-MERCOSUR Partnership Agreement on 6

December 2024 and on the modernisation of the agreement with Mexico.

The Federal Government is supporting the European Commission in ambitiously continuing and finalising ongo-

ing trade negotiations, including with Thailand, Indonesia and India.

→

76 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

ECONOMIC SECURITY AND RESILIENCE

80. Strengthening economic security

The Federal Government will actively support the new European Commission in further developing the EU

into a geostrategic player. At the same time, it will work towards ensuring that the three pillars of “Promote”,

“Protect” and “Partner” are implemented equally within the framework of the economic security strategy. The

Federal Government supports the development of a comprehensive economic security doctrine. In line with EU

guidelines, it will conduct a risk analysis on foreign investments in critical areas of technology related to improv-

ing the military and intelligence capabilities of actors who could make use of these capabilities to undermine

peace and international security. The Federal Government will strengthen research security. It will increasingly

focus on the security interests associated with critical technologies and the protection of critical value chains

and critical infrastructures.

81. Global Gateway

The Federal Government supports the global EU connectivity initiative Global Gateway financially and politically

as part of the “Partner” pillar. Together with the European Commission, the EU Member States, European devel-

opment banks and the private sector, €300 billion is to be mobilised by 2027 for sustainable infrastructure in

partner countries in Latin America and the Caribbean, Africa, the European neighbourhood and Asia. This means

that the Global Gateway will make an important contribution to diversifying our economic and political relations

and will thus help reduce one-sided dependencies. Along with faster implementation, the Federal Government is

particularly committed to improved integration of the private sector.

82. Launch of a commodity fund (GI measure No. 10)

The Federal Government’s raw materials fund was launched in October 2024 as part of its Growth Initiative. The

plan is to support raw material projects in the areas of extraction, processing and recycling that secure the long-

term supply of critical raw materials for Germany and the EU. Such critical raw materials are required for the

digital and industrial transformation, for aerospace as well as for the security and defence industries. The Raw

Materials Fund provides for the KfW to participate in raw materials projects in Germany and abroad in order to

provide financing support, particularly in the early stages of raw materials project development. Use will be made

of diversified financing arrangements, in particular equity instruments.

83. Climate Club

The Climate Club aims to support a swift and ambitious implementation of the Paris Agreement. Its focus is on

jointly driving forward global industrial decarbonisation. At present, the Climate Club comprises 43 members,

consisting of industrialised, emerging and developing countries from all regions of the world.

The three key advances of the Climate Club in 2024 (presented at COP 29) are (1) the improved common under-

standing of carbon leakage and the aim to work on cooperative approaches to it; (2) affirming the International

Energy Agency (IEA) principles for definitions of “green” steel and cement and recognising the convergence

towards thresholds for low and zero emission steel and cement production and the IEA’s work on this; (3) the

Global Matchmaking Platform acts as a central support instrument for newly industrialising and developing

countries, against the backdrop of the hitherto insufficient financing of industrial transformation in these coun-

tries.

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 77

C.9 Housing: increasing construction

activity and housing supply, supporting

lower-income households

99. Sufficient affordable housing, even in con-

urbations, is an important prerequisite for the

mobility of households and can thus make it eas-

ier to allocate workers to more productive jobs.

Therefore housing policy is often also growth pol-

icy. However, available and affordable housing is

also a basis for social cohesion in particular. The

attractiveness of Germany as a location for foreign

workers can also be increased by means of availa-

ble and affordable housing (cf. Item 132).

Despite these major challenges, the economic

conditions for residential construction invest-

ments have deteriorated noticeably since 2020

with the outbreak of the COVID-19 pandemic and,

at the latest, with the start of the war in Ukraine

in 2022. In particular, the comparatively rapid

and relatively sharp rise in interest rates in the

wake of monetary policy tightening, persistently

high construction prices and the after-effects of

weak momentum in real disposable income have

severely depressed the environment for residen-

tial construction investment in the last few years.

100. Against this backdrop, the Federal Govern-

ment has expanded its measures to promote new

construction, increase social housing construction

and support low-income households in financ-

ing their housing. The measures taken are helping

to stabilise construction activity in the housing

sector this year, despite the difficult underlying

conditions and a decline in building permits. The

persistently high construction backlog offers the

potential to continue supporting construction

activity despite the decline in building permits. At

the current margin, some light at the end of the

tunnel is gradually being seen with regard to res-

idential construction investment. Financing con-

ditions have now improved again and the volume

of new business for residential construction loans

has been increasing again since the start of 2024

(cf. Figure 15), as has the order backlog of compa-

nies in the residential construction sector (cf. also

Item 185).

101. It is important that targeted supply policy

measures continue to be driven forward to ensure

a continuous improvement in the investment

environment in residential construction and to

increase the economic viability of construction

projects. This is where the Federal Government’s

draft amendment to the Building Code comes

in. It focuses on enabling the creation of living

space by streamlining and speeding up approval

procedures as well as by adapting to the effects of

climate change. The government’s draft for the

new “Building Type E”, which is intended to sim-

plify deviations from standards in construction

contract law, facilitate simple construction and

thus significantly reduce construction costs, also

aims to further accelerate construction. This con-

struction policy focus is supplemented by meas-

ures aimed at achieving the targeted increase in

productivity in the construction industry in the

long term, such as the “Innovation in the building

sector” pilot project and the establishment of the

Federal Research Centre for Climate-Neutral and

Resource-Efficient Construction (LAB).

102. In order to increase the supply of affordable

housing, the Federal Government has created a

segment for non-profit private housing construc-

tion with its new non-profit housing programme.

Socially oriented companies, associations and

foundations can now be recognised as non-profit

organisations and benefit from the comprehen-

sive tax relief of non-profit status if they provide

subsidised housing (cf. Box 4).

78 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

103. In this legislative period, the Federal Gov-

ernment is providing demand-side stimulus

with tax measures such as the declining balance

depreciation for newly constructed residen-

tial buildings, the interest subsidy programmes

for climate-friendly new construction, support

for home ownership for families with low and

medium incomes, for the purchase of existing

housing “Jung kauft Alt” (“Young buys old”) and

with the cooperative housing subsidy programme.

Social housing was also given significantly more

support. Thus, according to the current financial

plan, a total of €21.65 billion in federal funding

has been earmarked for building social housing in

the period from 2022 to 2028. In this context, since

2023, the Federal Government has also been pro-

moting the creation of dormitory places for stu-

dents and trainees, and thus for Germany’s future

skilled workers, thanks to its special “Young Hous-

ing” programme. Urban development funding also

supports cities and municipalities in eliminating

urban planning deficiencies, strengthening town

centres and building sustainable housing. Never-

theless, investment volumes are likely to remain

too low for the foreseeable future. Further meas-

ures to boost demand for construction are, there-

fore, necessary.

104. In order to keep housing affordable for as

many citizens as possible, the monthly housing

benefit was increased by an average of 15% or €30

as of 1 January 2025, as provided for by law. This

will bring housing benefit in line with price and

rental price developments in Germany. Regularly

updating the housing benefit will maintain its

relief effect in the context of nominal price devel-

opments and ensure that it remains effective as

a social policy instrument of housing policy. The

Interest rates for new housing loans to priv. households (effective interest rate p.a. incl. costs); left-hand scale

New business volumes for housing loans to private households; right-hand scale

In percent p.a. € bn

2019 2020

Jan Mar May Jul Sep Nov JanMarMay Jul Sep Nov

2021

JanMarMay Jul Sep Nov

2022

JanMarMay Jul Sep Nov

2023

JanMarMay Jul Sep Nov

2024

JanMarMay Jul Sep Nov

Figure 15: Interest rate developments and volume of residential property loans

Source: Deutsche Bundesbank

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 79

update largely prevents households from having

to switch to the minimum security systems as set

out in Social Code Book II and Social Code Book

XII due to increased standard requirements or

from losing their housing benefit entitlement due

to a nominal increase in income.

BAFFORDABLE HOUSING, SUPPORT FOR LOW-INCOME HOUSEHOLDS

84. “Jung kauft Alt” development programme

Under the “Jung kauft Alt” (“Young buys old”) programme, which has been in place since September 2024, fam-

ilies with an annual taxable income of up to €90,000 with a minor child in the household (plus €10,000 per

additional child) can apply for low-interest loans to buy existing housing stock, which they can then renovate to

make it more energy efficient. This makes purchasing residential property in need of renovation more attractive

and contributes to one’s private provision for old age, to increasing the home ownership rate and to achieving

climate action targets in the building sector. The government draft for 2025 provides for programme funds of

€350 million, but the 2025 budget preparation remains to be seen.

85. New non-profit housing

In addition to social housing, the new non-profit housing status (“Neue Wohngemeinnützigkeit”) will create

another strong pillar for more affordable housing. As of 1 January 2025, socially oriented companies, associations

and foundations can be recognised as non-profit organisations and benefit from the comprehensive tax relief of

non-profit status if they provide subsidised housing. The requirement for this is that the rent offered is below

the standard market rent and the accommodation is rented to households within the specified income threshold

(which covers around 60% of households in Germany).

86. Funding programme for climate-friendly new builds in the low-cost segment

A total of €1 billion has been made available for this programme, launched in 2024, to stimulate the construction

of affordable housing in the short term. The programme will run until 31 December 2025.

SIMPLE, FAST AND INNOVATIVE RESIDENTIAL CONSTRUCTION

87. Building Type E (law, guidelines and amendments to building contract law)

The government bill of the Building Type E Act was approved by the Cabinet on 6 November 2024. It is intended to

make building in Germany simpler, cheaper and faster. To this end, the government bill envisaged making amend-

ments to construction contract law. The Building Type E Act should make it easier to deviate from legally non-man-

datory standards and make use of innovative, sustainable or cost-effective construction methods and materials.

88. Amendment to the Federal Building Code (BauGB)

The bill to strengthen integrated urban development adopted by the Cabinet on 4 September 2024 is designed

to reform the Federal Building Code and the Federal Land Utilisation Ordinance. Its particular aim is to facili-

tate the creation of living space, simplify procedures and boost adaptation to the effects of climate change. The

extent to which the amendment to the law will be passed in the 20th parliamentary term is currently the subject

of discussions in the German Bundestag. This applies, in particular, to the general clause for housing construction

proposed in the amendment, which allows deviations from building planning regulations to be made under cer-

tain conditions.

→

80 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

Statement by the Federal Government

on Chapter 4 “Strengthening the Future

Orientation of Public Finances” of the

Annual Report of the Expert Council on

Integration and Migration (GCEE)

105. In its 2024-25 annual report, the GCEE devotes

a separate chapter to the availability of and access

to housing. In it, the shortage of housing, particu-

larly in metropolitan areas, is not only presented as

a social problem, but is also seen as being of mac-

roeconomic importance, since it inhibits the influx

of labour into productive regions. The analysis of

the initial situation corresponds to the statements

of the Federal Government in Chapter C.9 (cf. Item

99 et seq.).

106. In its Annual Report, the GCEE proposes alle-

viating the shortage of building plots in urban

centres through densification. It thus welcomes

the stronger alignment of property tax to land

value and the introduction of property tax C

(GCEE Annual Report Items 384, 385). Increased

external development in tight housing markets

(GCEE Annual Report Items 383, 388) as well as the

strengthening of serial and modular housing con-

struction and the harmonisation of state building

regulations (GCEE Annual Report item 387) should

also result in more housing construction.

The GCEE’s proposals for densification reflect

what is already partially laid out in measures by

the Federal Government or is already possible

under current law (cf. table entries no. 87 et seq.).

The updating of the Model Building Regulation

and its transposition into state law is helping to

reduce construction costs in the housing sector.

The federal and state governments have agreed to

a large number of measures under building regula-

tions, including exemption from planning permis-

sion for extensions and loft conversions, which ten

Länder have now incorporated into their respec-

tive state building regulations.

The introduction of property tax C on undevel-

oped plots ready for construction may counteract

any reluctance to purchase land and help to make

urgently needed housing available more quickly

in urban centres. However, this will depend on the

political will of the local authorities, since they are

89. Federal Research Centre for Climate-neutral and Resource-efficient Building (LAB)

Closing research gaps in the field of sustainable construction, the networking of stakeholders and institutions

and the consistent transfer of innovations into progressive construction practice are goals that the Federal

Research Centre for Climate-neutral and Resource-efficient Construction aims to achieve. Initial expenditure of

€3.6 million in the 2024 federal budget has been set aside for establishing the centre. Further funding is planned

until 2028.

90. Model project “Innovation in the buildings sector”

The transfer of research results into general planning and construction practice has so far been inadequate.

There is a lack of application-oriented construction research projects and the possibility of experimental con-

struction as essential elements of a functioning transfer of innovation. The funding of pilot projects, such as

“Innovation im Gebäudebereich” (“Innovation in the buildings sector”) is intended to close the gap between

building research and practice and so sets itself apart from regular building research. A total of €50.6 million is

available for the funding programme in one tranche. The deadline for submitting project outlines was 12 Novem-

ber 2024. A total of around 100 project applications were submitted, amounting to more than €150 million.

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 81

in charge of deciding on whether to introduce

property tax C in their local authority area.

The proposal for serial and modular construction

is to be favoured, because it boosts residential

construction by reducing construction costs and

shortening project lead times. The high degree of

industrial prefabrication primarily favours econ-

omies of scale in the areas of planning, produc-

tion and execution. With the inclusion of the type

approval procedure as an instrument in almost all

16 state building regulations, the Länder have cre-

ated the framework for harmonising all the build-

ing regulations with the aim of removing obsta-

cles to serial and modular housing construction.

107. The GCEE sees a large gap between existing

and new rents as an obstacle to relocation that

hinders the efficient exploitation of existing living

space. It proposes a (slight) reduction in rent caps

and the temporary use of a rent cap (GCEE Annual

Report Items 398, 399), the increased use of qual-

ified rent indexes, a shortening of the period for

which the local comparative rent is determined

(GCEE Annual Report Item 400) and the reduction

of transaction costs (property transfer tax, estate

agent and notary costs) (GCEE Annual Report

Items 403-405).

The Federal Government takes a critical view of

the GCEE’s assessment of the rent freeze. In prin-

ciple, restrictive regulations can also have negative

effects, such as less efficient utilisation of living

space. However, according to current legislation,

the regulations on lowered rent caps and the rent

freeze are already limited in time. The rent freeze

and the reduced rent cap in tight housing markets

are not only aimed at individual tenancies, but

also at the structure of towns and cities. Restrict-

ing rents for re-letting prevents displacement,

supports the existence of socially mixed neigh-

bourhoods and reduces the risk of segregation.

The Federal Government is already taking tar-

geted measures to increase the supply of housing.

However, rent regulation is also advisable as a

flanking measure until these measures take effect

and the shortages on the housing market have

been eliminated. The greater weighting of new

rents as a result of the GCEE’s proposed reversal

of the extension of the observation period for the

local comparative rent would lead to rents rising

more steeply. On the other hand, a longer obser-

vation period would help to smooth out market

developments over time and mitigate any jumps.

Furthermore, shortening the observation period

would deny market relevance to those provid-

ers of housing on the rental market who demand

a constant price for their services over a longer

period of time. The Federal Government shares

the view that relief from land transfer tax would

contribute to a reduction in transaction costs,

which could increase the number of property

transactions. The same applies to the other trans-

action costs elements. What should be borne in

mind is that the revenue from real estate trans-

fer tax is due in full to the Länder, which would,

therefore, also have to bear any shortfall in rev-

enue. Changes to the real estate transfer tax are

thus only possible with the approval of the Bun-

desrat. The proposal to restrict tax avoidance

opportunities through “share deals” in order to

counter-finance this relief is basically shared. Par-

ticularly in the case of large property transactions,

real estate transfer tax can be avoided through

so-called “share deals” whereby shares in the com-

pany owning the property are acquired rather

than in the property itself. The proposal on the

buyer-pays principle for estate agent fees appears

to make economic sense, since it can contribute to

the effective reduction of ancillary construction

costs.

108. Last but not least, the GCEE stresses the need

to improve access to housing for the socially dis-

82 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

advantaged. In this context, the GCEE emphasises

the justification of supporting individuals through

housing benefit and its dynamisation and sug-

gests a uniform transfer payment with low transfer

withdrawal within the framework of basic secu-

rity (GCEE Annual Report Item 407). Complemen-

tary to housing benefit, a strengthening of social

housing construction is also welcomed, as is the

introduction of the new housing non-profit sta-

tus. Moreover, the Federal Agency for Real Estate

(BImA) could be enabled to take out loans to gen-

erate additional funds for its own investments and

so continue to support municipal construction

(GCEE Annual Report Item 408). Finally, the GCEE

proposes introducing a “misoccupancy levy” to

promote access to social housing (GCEE Annual

Report Item 409).

The Federal Government is aware of the exist-

ing interface problems in Germany’s tax-trans-

fer system and the associated false incentives for

employment behaviour in specific case constella-

tions. Improved coordination of social benefits and

the avoidance of high marginal burdens are fun-

damentally necessary in order to reduce the com-

plexity of the welfare state and increase incentives

to work. However, the existing advantages of hous-

ing benefit, for example, which are associated with

its design as a priority benefit, must be preserved.

The latter is an argument against the GCEE’s pro-

posal to merge housing benefit and KdU or “Kos-

ten der Unterkunft”, a benefit to cover heating and

housing costs.

The Federal Government takes the view that

increasing and stabilising financial assistance for

social housing construction is important and has

been appropriately implemented in this legislative

period. In the period from 2022 to 2028, a total of

€21.65 billion of federal funding has been set aside

for social housing construction according to the

current budget (cf. Item 103). This realignment has

led to a 21% increase in subsidised housing units

compared to 2022 to around 50,000, despite the

difficult conditions for housing investment. Nev-

ertheless, further measures are required in view of

the low and declining number of social housing

units. The Federal Agency for Real Estate (BImA)

supports the Federal Government’s housing pol-

icy goals through its programmes for new housing

construction and the reduction of BImA vacan-

cies as part of the Federal Government’s housing

welfare responsibilities. The Federal Government

advocates examining an expansion of the BImA’s

options for meeting housing welfare needs. The

BImA should continue to support municipal hous-

ing construction by extending and supplementing

the instruments that are already in place. Accord-

ing to section 6 (2) BImAG (Law on the Federal

Agency for Real Estate Tasks), the BImA is currently

unable to borrow on the market; any loans nec-

essary are granted by the Federal Government in

accordance with the Budget Act. With regard to the

possibility of borrowing on the market proposed

by the GCEE, it is vital that such a programme

would comply with the debt rule enshrined in the

German constitution. A tax on misoccupancy can

be an adequate means of combating inappropriate

occupancy and increase the accuracy and accept-

ance of social housing construction. Furthermore,

the revenue generated by the misoccupancy levy

could be used to construct new social housing.

However, in this debate, the growth in bureau-

cracy and administrative costs must be taken

into account, as the GCEE also recognises (GCEE

Annual Report Item 411). The Länder are author-

ised to decide on the introduction and structure of

an misoccupancy levy.

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 83

C.10 Transport: modernising infra-

structure, driving forward the mobility

transition

109. A modern and efficient transport infrastruc-

ture is an important prerequisite for growth and

employment and, at the same time, a fundamen-

tal basis for a comprehensive range of mobility

services. For many years, a considerable backlog

of renovation work on railways, roads and water-

ways in Germany has built up. In addition, there is

a need to establish a nationwide and user-friendly

charging infrastructure in order to successfully

ramp-up the market for e-mobility.

110. A record €26.4 billion in transport investments

was made available in the 2024 budget to finance

the maintenance and modernisation of federal

transport routes. Of this, €16.3 billion was allot-

ted to rail, €8.5 billion to roads and €1.4 billion to

waterways (cf. Figure 16).

Besides direct investment in federal transport

routes, the Federal Government supports infra-

structure measures for public transport railways

in the Länder, including via the federal pro-

gramme of the Municipal Transport Financing

Act and the Regionalisation Act. Additionally,

the Federal Government is providing the federal

states with €1.5 billion in each of the years from

2023 to 2025 to compensate for the financial dis-

advantages of the “Deutschlandticket”, a heavily

subsidised subscription public transport ticket

that is valid for all local public transport through-

out Germany. In December 2024, the Tenth Act

to Amend the Regionalisation Act regulated the

usability of the funds from 2023 for 2024 and 2025

(i.e. the carrying over of unspent funds to the next

financial year). In addition, the Federal Govern-

ment finances infrastructure projects motivated

by structural policy as part of the implementation

of the Coal Regions Investment Act.

Percent of GDP

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Figure 16: Share of federal transport investment (target) in GDP

Source: In-house diagram.

84 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

111. The ramp-up of electromobility and the asso-

ciated expansion of a nationwide, needs-based

and user-friendly charging infrastructure are cen-

tral to sustainable and climate-friendly mobility.

User-friendliness also includes price transpar-

ency and the payment process. Since December

2021, the number of publicly accessible charging

points in operation has almost tripled (+180%). The

Charging Infrastructure Masterplan II, as adopted

by the Federal Cabinet in October 2022, is the Fed-

eral Government’s overall strategy for expanding

the charging infrastructure. A total of 43 of the

68 measures it contains have been fully imple-

mented (as of November 2024). They focus on

the areas of the availability of space, empowering

municipal players and integrating the expansion

of charging infrastructure and the electricity grid.

With the “Deutschlandnetz”, comprising around

9,000 HPC fast-charging points at more than 1,000

locations, the Federal Government is intensifying

and complementing the nationwide expansion of

fast-charging infrastructure and ensuring a basic

supply in the regions and on motorways. The Fed-

eral Government is providing a total of €2.3 billion

for this purpose. Expansion of the sites is to be

completed by the end of 2026.

The invitation to tender for the HGV fast-charg-

ing network along the federal motorways will

further advance the expansion of a nationwide,

needs-based and user-friendly charging infrastruc-

ture. According to the current planning status,

there will be a fast-charging network for electric

heavy goods vehicles (HGV) at around 350 sites,

of which around 220 will be managed and around

130 unmanaged motorway service areas offering a

total of 4,200 charging points.

112. The Federal Government is pursuing its goal

of expanding an initial hydrogen refuelling station

network for heavy commercial vehicles, particu-

larly against the background of achieving the tar-

gets of the EU Regulation on the deployment of

alternative fuels infrastructure (AFIR) by 2030. It is

also supporting the development and innovation

of renewable sources of fuels.

91. Fourth Act to Amend the Federal Rail Infrastructure Development Act (BSWAG)

The Act entered into force on 9 July 2024. The creation of additional financing options in the BSWAG (e.g. with

regard to the costs of maintenance and repair of the railway lines of the German railways) also enables invest-

ment to be made in the existing railway infrastructure with the aim of increasing its performance and availability.

At the same time, the basis is created in particular for cost sharing for rail replacement services associated with

the general refurbishment of so-called high-performance corridors and the funding of vehicles with regard to

the European Train Control System (ETCS). In addition, the law clarifies matters with regard to station buildings

and financing in the existing network.

92. Operating cost support for single wagon transport

With the operating cost subsidy that came into force on 1 June 2024, the Federal Government is relieving rail

transport companies involved in single wagon transport of part of the high operating costs. The aim is to secure

and strengthen single wagon transport as an important lever for shifting traffic from road to rail. Around €300

million in funding was available in the 2024 federal budget. The directive is limited until 31 May 2029 and is to be

evaluated in 2026.

→

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 85

93. Introduction of mandatory tolls for vehicles with a technically permissible maximum mass of more

than 3.5 tonnes (TPMLM)

Directive (EU) 1999/62 (the so-called infrastructure costs or Eurovignette Directive) definitively regulates the

levying of road tolls at EU level. The directive obliges Germany to lower the toll threshold to vehicles weighing

more than 3.5 tonnes TPMLM (technically permissible maximum laden mass). The extension took place with the

Third Act to Amend Tolling Regulations on 1 July 2024 and sets an important course for the sustainable financing

of transport infrastructure and with regard to the climate action target.

94. Call for tenders for fast-charging network for heavy goods vehicles

Autobahn GmbH des Bundes is conducting a first round of tenders for lorry charging locations at around 130

unmanaged motorway service areas (tender documents published on 16 September 2024). In order to be able to

provide grid connections for the HGV fast-charging network as quickly as possible, Autobahn GmbH (officially as

of 3 July 2024) is already ordering in advance the grid connections on federally owned sites to meet the require-

ments of the 2030s. All grid connections are to be commissioned by the second quarter of 2025.

95. Ordinance on the Revision of the Charging Station Ordinance

The new provisions are intended to adapt the Charging Station Ordinance (LSV) and the Price Indication Ordi-

nance (PAngV) to the requirements of the Alternative Fuels Infrastructure Regulation (AFIR). The LSV stipulates

that the Federal Network Agency can monitor compliance with the technical requirements of the AFIR for pub-

licly accessible charging points. In particular, the PangV stipulates that the AFIR requirements for the price com-

ponents of spot charging will be transferred to the fast-charging stations with a capacity of 50 kilowatts or more

that were installed by 13 April 2024 , and which, therefore, do not fall within the scope of the AFIR.

96. Technology platform for power-to-liquid fuels

The Federal Government is supporting the establishment of the “Technology Platform PtL Fuels” (TPP) in Leuna

with a focus on air and shipping transport with funds totalling €130 million (2024-2028). In the meantime, the

funding decision for the construction of the TPP has been issued. The TPP focuses on technologies and large-

scale processes to produce electricity-based fuels – also known as power-to-liquid fuels (PtL) – on an industrial

scale in the near future.

97. National Action Plan for Climate-Friendly Shipping

The National Action Plan for Climate-Friendly Shipping is being developed as a strategic framework for national

maritime and inland shipping in a broad participation process. The action plan aims to support the transfor-

mation of shipping towards greenhouse gas neutrality and, at the same time, boost the competitiveness of the

German maritime and inland shipping sector. It supplements the international activities at the level of the EU,

the International Maritime Organisation and the Central Commission for the Navigation of the Rhine. It is to be

finalised as quickly as possible and applied by 2025.

86 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

Statement by the Federal Government on

Chapter 5 “Freight transport: infrastruc-

ture requirements and decarbonisation”

of the GCEE Annual Report

113. The GCEE, the German Council of Economic

Experts, devotes a separate chapter to freight

transport in this year’s annual report and sees two

fundamental challenges: on the one hand, there

is an urgent need for modernising and expanding

the infrastructure, and, on the other, additional

efforts are needed to decarbonise it if climate pol-

icy goals are to be achieved.

114. With a view to permanently increasing and

stabilising expenditure on infrastructure invest-

ment and maintenance, the GCEE proposes a

transport infrastructure fund (GCEE Annual

Report Item 177). With this in mind, it also sug-

gests the further development of user financing

through the introduction of a distance-based car

toll (GCEE Annual Report Item 492).

115. Overall, the discourse on future transport

infrastructure funding should be conducted in

conjunction with the fundamental financial and

budgetary policy debate. This can also include

making it easier to use funds over a period of sev-

eral years in order to bring about the planning

security required to implement investment meas-

ures.

116. For rail freight transport, the GCEE recom-

mends a series of measures to increase capacity

and efficiency. It emphasises the pan-European

introduction of digital automatic coupling and

more efficient train path planning (GCEE Annual

Report Item 497). The GCEE also recommends tap-

ping further potential with regard to a single Euro-

pean railway area by speeding up approval pro-

cedures for new and upgraded lines and reducing

incompatibilities in international rail freight trans-

port. False incentives in the execution of main-

tenance measures should be eliminated (GCEE

Annual Report Items 500, 501).

The Federal Government is pursuing its goal of

improving the competitiveness of rail freight

transport and increasingly shifting freight trans-

port from road to rail. The Federal Government

is supporting this goal with a range of measures

such as operating cost subsidies for single wagon

transport and track access charge subsidies. Since

2018, the Federal Government has been subsidis-

ing track access charges for rail freight transport

with the aim of giving rail transport companies

the chance to offer their customers more attractive

prices and bolster their competitive position by

investing in innovations such as automation and

digitalisation. With the federal programme “Future

of Rail Freight Transport”, the Federal Govern-

ment has also been promoting modernisation in

rail freight transport in the areas of digitalisation,

automation and vehicle technology since 2020. In

2024, the federal programme was extended until

the end of 2029. The Federal Government strongly

supports the introduction of Digital Automatic

Coupling (DAC). From June 2020 to June 2026, the

Federal Government is providing around €30 mil-

lions for the “DAC Demonstrator” research project.

The main aim here is to demonstrate the tech-

nical and operational functionality of DAC. The

EU-wide deployment of pilot trains is planned to

start in 2026. The Approval Acceleration Act, which

entered into force at the end of December 2023,

will make an important contribution to acceler-

ating the construction and expansion of railway

lines.

117. In the context of the charging infrastructure

for battery-electric lorries, the GCEE recommends,

in particular, that areas for the installation of lorry

charging points and interactive network maps of

connection capacities be made available quickly

and with a minimum of bureaucracy (GCEE

Annual Report Items 519, 509, 510).

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 87

As a transit country, Germany has a keen interest

in a functioning cross-border European refuel-

ling and charging infrastructure for alternative

drive systems in road freight transport. This is

why the Federal Government welcomes the min-

imum expansion targets of the EU Regulation on

the deployment of alternative fuels infrastructure

(AFIR). The planned HGV fast-charging network

with a total of around 350 locations along the fed-

eral motorways will contribute to achieving the

AFIR targets (2025, 2027, 2030).

The tendering process for the development of a

fast-charging network for heavy goods vehicles at

around 130 unmanaged motorway service areas

was launched in September 2024. The competition

model planned addresses the risks of excessive

prices due to local market power and low capacity

utilisation by regulating the infrastructure charge.

The procedure for setting up the HGV fast-charg-

ing network at around 220 managed motorway

service areas is to follow in 2025. Besides support

measures from the public sector, private sector

activities remain essential to enable the market

ramp-up of electric HGVs.

The Federal Government agrees with the GCEE

that the timely provision of efficient grid connec-

tions is necessary to rapidly realise a nationwide

fast-charging network for HGVs. To this end, grid

connections to satisfy requirements up to 2035

have been on order since July 2024.

To coordinate grid expansion activities, distribu-

tion system operators already have to submit grid

maps to the Federal Network Agency in accord-

ance with section 14 Energy Industry Act. The data

on future lorry and car charging requirements are,

in turn, available to the distribution grid operators

to support them in their regional scenarios.

D. Measuring welfare and social

progress

118. The welfare of society as a whole is a holistic

concept based on various individual aspects. Tradi-

tionally, GDP has been used as a measure of mate-

rial well-being. However, a single value cannot

fully reflect the different dimensions of a broader

concept of welfare. Rather, the level and develop-

ment of welfare are the result of various aspects,

not all of which are traditionally measured in

economic statistics. Besides economic prosperity,

these also include, for example, distributional and

gender equality, the quality of education and ser-

vices of general interest, an efficient infrastructure,

research and innovation capabilities and the state

of the environment.

119. This chapter broadens the view beyond GDP

to include other economic, social and ecological

aspects so as to demonstrate this holistic perspec-

tive in terms of qualitative growth. The fourth

edition of the chapter maintains continuity, thus

ensuring that the indicators presented in it can be

analysed over a longer period of time. It indicates

the areas in which Germany is currently on an

economically and ecologically sustainable, socially

balanced and future-proof path and those where

additional efforts are required. In this respect, wel-

fare indicators are part of an evidence-based policy

for a socio-ecological market economy.

120. The measurement of welfare carried out here

does not represent a comprehensive considera-

tion of all relevant aspects of social life, but rather

focuses on topics that are linked to economic and

financial policy and the other key topics of the

Annual Economic Report. It does not replace the

in-depth, specialised reports of the respective min-

istries or the German Sustainable Development

Strategy. Nevertheless, some of the indicators used

in the Sustainable Development Strategy are also

of relevance to the measuring of welfare, and are

88 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

used in this chapter. They are labelled with an “N”

in the charts below.

121. Evidence-based policies which accompany

processes of transformation effectively and in a

targeted way require a sound data basis. One fun-

damental aspect for the selection of welfare indi-

cators is, therefore, meaningful and up-to-date

data In individual cases, data may not be available

at present or may only be available after a consid-

erable delay. Also, developments in methodologies

can result in interruptions to the timelines of cer-

tain indicators (cf. Box 7).

122. That is why the selection and system of indi-

cators are continuously being reviewed, improved

and supplemented with new aspects wherever

necessary. This year, for example, the “circularity

rate” has been included for the first time ever; this

measures the proportion of recycled and reused

materials in total material consumption and so

represents a measure of the extent of the circular

economy. In addition to income distribution, net

wealth distribution is also analysed for the first

time using the corresponding Gini coefficient.

123. The bureaucratic burdens currently in focus

may also be relevant in the context of a broader

welfare analysis. Bureaucracy can have both a pos-

itive and a negative impact on welfare. For exam-

ple, efficient bureaucracy leads to companies being

able to utilise their resources productively by set-

ting sensible standards. This increases productivity

growth, which, in turn, has a positive impact on

welfare. The same applies to the administrative

authorities, which should make use of their limited

resources as effectively as possible. However, the

economy and the population are currently critical

of too much bureaucracy and the administrative

authorities are also complaining about excessive

burdens. However, the debate must also take into

consideration the fact that clear and reliable regu-

lations can bring benefits for all those it addresses.

Consideration of the topic in the context of wel-

fare indicators will be examined for future annual

economic reports (on existing metrics cf. Box 8).

124. The selected presentation or ranking of the

indicators does not make any statements about the

prioritisation of individual fields of action in the

four overarching areas (I) Economic performance

and basic needs, (II) Social justice and participa-

tion, (III) Ecological limits and (IV) Sustainability of

the state and economy. It should also be noted that

individual indicators are representative of broader

topics. Thus, the limited number of indicators

maintains a balance between the breadth of topics

and the clarity of the welfare analysis.

Box 7: Methodological revisions of various data sources

Note on the microcensus: As a result of a comprehensive revision of the microcensus in 2020, the data from

this reference year onwards are not fully comparable with the data from the preceding years (break in the time

series). Isolated technical issues impacted on the 2021 survey, although the effects were smaller than in 2020.

Note about “Living in Europe”: The EU statistics on income and living conditions (SILC) were integrated into

the microcensus in 2020. Due to methodological disparities, it is not possible to compare the data for the 2020

reference year with data from preceding years.

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 89

Box 8: Measuring bureaucratic burdens

The Federal Government has developed a set of instruments to assess the follow-up costs of regulations. The

key metrics are compliance costs and bureaucratic costs. The compliance costs cover the measurable time and

(material) costs incurred by citizens, companies or the administration as a direct result of new federal regu-

lations (section 2 (1) NKRG, Act Establishing a National Regulatory Control Council). This also includes, for

example, investment costs for complying with standards. Bureaucracy costs are a subset of compliance costs;

they include the classic “paperwork”. The Bureaucracy Cost Index (BKI) of the Federal Statistical Office shows

the development of bureaucracy costs for the economy since 2012 as a result of legal changes. Since the BKI

was introduced (2012 = 100), it has been trending downwards and is currently below its initial value (Sept.

2024 = 97.03).

However, the informative value of these existing metrics in the context of a welfare analysis is limited: for one

thing, they do not provide any information on the benefits of regulation and the efficiency of administration.

Moreover, both the BKI and the compliance costs are based exclusively on federal regulations, i.e. the fol-

low-up costs of laws at federal state level and of directly effective EU regulations are not taken into account

(ection 2 (1), (2) NKRG). In addition, bureaucratic requirements can result in further direct and indirect costs.

What can be challenging, for example, is the interplay of different legal requirements. A burden cannot, there-

fore, always be attributed to a single legal regulation. There are also macroeconomic costs if, for example,

company resources are shifted away from productive activities towards the fulfilment of information obliga-

tions, or macroeconomic benefits if, for example, standards eliminate uncertainties and bring about a level

playing field.

90 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

Indicator Units Last available

figure Penultimate

available figure Year on year

change

I Economic performance and basic needs

Gross national income per capita (here: price-adjusted) in € 43,843 (2024) 43,924 (2023) -0.2%

Real wage development Index, 2022=100 100.1 (2023) 100 (2022) +0.1 PP

Labour productivity Index, 2020=100 100.7 (2024) 100.8 (2023) -0.1 PP

Employment rate (20-64 years; here: total) in % 81.1 (2023) 80.6 (2022) +0.5 PP

Premature mortality (prior to the end of the 70th year of life)

Women Deaths per 100,000

inhabitants 147 (2023) 153 (2022) -3.9%

Men 271 (2023) 284 (2022) -4.6%

Skills potential: Proportion of 30-34 year-olds with a formal qualification

(here: total) in % 78.1 (2023) 77.9 (2022) +0.2 PP

Proportion of persons with an academic or higher vocational qualification 56.3 (2023) 53.4 (2022) +2.9 PP

Development of supply of and demand for training places

Supply of training places Quantity 556,116 (2024) 562,626 (2023) -1.2%

Demand for training places (acc. to the traditional definition of demand) 517,863 (2024) 515,562 (2023) +0.4%

Proportion of people with high housing costs in % 13.0 (2023) 11.9 (2022) +1.1 PP

Accessibility of central public service facilities (Proportion of the

population with facilities within a defined distance) in % 56.0 (2022) 53.1 (2021) +2.9 PP

II Social justice and participation

Early school and training leavers in % 13.1 (2023) 12.8 (2022) +0.3 PP

Children in all-day care in daycare centres and childminding services

0 to 2-year-olds in % 20.0 (2024) 19.7 (2023) +0.3 PP

3 to 5-year-olds 47.0 (2024) 47.0 (2023) +/- 0

Gender pay gap

unadjusted in % 18 (2023) 18 (2022) +/- 0

adjusted 6 (2023) 7 (2022) -1 PP

Women in executive positions

Executive Board

in %

21.7 (2024) 20.5 (2023) +1.2 PP

Supervisory Board 38.5 (2024) 37.3 (2023) +1.2 PP

Public service (supreme federal agencies) 45.2 (2023) 43.2 (2022) +2.0 PP

Collective bargaining coverage (percentage of all employees) in % 49 (2023) 51 (2022) -2 PP

coefficient

Disposable income Gini coefficient 0.294 (2023) 0.290 (2022) +0.004

Net wealth 0.766 (2024) 0.766 (2023) +/- 0

Regional income distribution (disposable household income per person in the districts, in €) [see map]

Gini coefficient of the regional income distribution Gini coefficient 0.055 (2022) 0.053 (2021) +0.002

III Ecological limits

Greenhouse gas emissions In million t CO2 eq. 672 (2023) 750 (2022) -10.4%

Share of renewable energy in gross final energy consumption in % 21.6 (2023) 20.9 (2022) +0.7 PP

Final energy productivity Index, 2008=100 131.8 (2023) 126.6 (2022) +5.2 PP

Industry investments in climate action in million euro 4,966 (2022) 4,154 (2021) +19.5%

Total raw material productivity Index, 2010=100 115 (2021) 112 (2020) +3 PP

Circular material use rate in % 13.9 (2023) 12.5 (2022) +1.4 PP

Biodiversity and landscape quality Index, 2030=100 75.3 (2019) 73.7 (2018) +1.6 PP

Expansion of settlement and transport area Hectares per day 52 (2022) 55 (2021) -5.5%

Emissions of air pollutants Index, 2005=100 65.6 (2022) 66.0 (2021) -0.4 PP

Reduction of nitrates in groundwater (metering points below threshold) in % 85.0 (2023) 84.0 (2022) +1.0 PP

IV Future viability of the state and the economy

Gross fixed capital formation

Non-state sectors as a percentage of GDP 17.9 (2024) 18.7 (2023) -0.8 PP

State sector 2.9 (2024) 2.8 (2023) +0.1 PP

Private and public spending on research and development as a percentage of GDP 3.11* (2023) 3.07 (2022) +0.03 PP

Innovator rate in % 51.0 (2023) 50.7 (2022) +0.3 PP

Startups, percentage of startups by women and percentage of innovative start-

ups: (here: total number of startups) in 1,000s 568 (2023) 550 (2022) +3.3%

Share of world trade in research-intensive goods in % 9.5 (2023) 9.6 (2022) -0.1 PP

Broadband availability (percentage of households with access to landline

≥ 1000 Mbit/s) in % 76.5 (2024) 73.6 (2023) +2.9 PP

Public spending ratio as a percentage of GDP 48.4* (2023) 49.0* (2022) -0.6 PP

Tax ratio as a percentage of GDP 23.1 (2023) 24.5 (2022) - 1.4 PP

State fiscal balance

Debt ratio-stabilising fiscal balance as a percentage of GDP -1.8 (2024) -3.6 (2023) +1.8 PP

Actual/expected fiscal balance -2.6 (2024) -2.6 (2023) +/- 0

Government debt-to-GDP ratio as a percentage of GDP 63 ¼^ (2024) 62.9 (2023) + ¼ PP

Credit/GDP gap in percentage points -1.09 (Q2 2024)

-0.70 (Q2 2023)

-0.39 PP

%=per cent; PP=percentage points; *provisional data; ^projection

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 91

(I) Economic performance and basic needs

Gross national income per capita: Average income

earned within a year by all the inhabitants of a country

(residents) irrespective of whether it was earned in the

country itself or abroad.

Real wage development: The real wage index contrasts

the development of earnings with that of prices. The

nominal wage index is used to calculate the change in

average gross monthly earnings including special pay-

ments in the goods-producing sector and the services

sector, and the consumer price index is used to calculate

the change in prices. If the rate of change in the real

wage index is positive, then wages have risen faster than

consumer prices; if the rate is negative, the opposite is

true.

202420232022202120202019201820172016201520142013201220112010

in €1,000

In current prices Price-adjusted

Gross national income per capita

Source: Federal Statistical Ofﬁce.

100

105

110

20232022202120202019201820172016201520142013201220112010

Index, 2022 = 100

94.8 95.9 96.5 96.4

98.0

100.2

102.0

103.0

105.5 104.2 104.2

104.4

100.0

100.1

Real wage development

Source: Federal Statistical Ofﬁce.

100

105

202420232022202120202019201820172016201520142013201220112010

Index, 2020 = 100; Labour productivity per hour worked

90.2

92.4 93.1 93.4 94.3 94.9

96.3

98.1 98.4 99.1

100.0

101.3

101.4

100.8

100.7

Labour productivity

Source: Federal Statistical Ofﬁce.

Labour productivity: Ratio of GDP in constant prices to

the total input volume of work measured in the hours

worked.

92 I. WIRTSCHAFTS- UND FINANZPOLITIK DER BUNDESREGIERUNG

Sustainable Development Strategy indicator

4.1.b: Tertiary or other post-secondary

academically or vocational qualiﬁed persons

100

2023202220212020201920182017201620152014

Proportion of all 30 to 34-year-olds in per cent

83.7 83.7 83.1 83.1 82.9 82.7 81.1 79.6 77.9

Higher qualifying vocational training

Academic degreesInitial vocational qualiﬁcation

Second vocational training, training after Abitur

78.1

Total

Skills potential: 30 to 34-year-olds with a

formal qualification

Source: Federal Statistical Ofﬁce.

Skills potential: Proportion of 30 to 34-year-olds with

formal qualification broken down by: 1) People with an

initial vocational qualification and 2) vocationally higher

qualified persons (e.g. a second vocational training, train-

ing after obtaining a university-entrance qualification,

further training qualifications) and academically qualified

persons (e.g. with university degree). According to the

Sustainable Development Strategy, the aim is to have

55% of 30 to 34-year-olds holding university degrees or

higher vocational qualifications by 2030. See note about

the microcensus data sources in Box 7. Totals include

deviations due to rounding.

Employment rate: Proportion of people in work in terms

of the total number of the corresponding group of the

population on the basis of the Eurostat labour survey.

Figures generally for people aged 20–64. Moreover, older

people (aged 60-64) in work are considered separately.

20232022202120202019201820172016201520142013201220112010

In percent

Men

Older people

Foreign persons

Women

Total

Employment rate

Source: Federal Statistical Ofﬁce based on EU-LFS.

Premature mortality: Deaths of the female and male

population before the end of the 70th year of life per

year, standardised for age and relating to 100,000 inhab-

itants excluding the under one-year-olds. According to

the Sustainable Development Strategy, by 2030, prema-

ture mortality should not exceed 200 deaths per

100,000 inhabitants.

100

150

200

250

300

350

20232022202120202019201820172016201520142013201220112010

Deaths per 100,000 inhabitants aged under 70

301 299 292 292 281 288 284 276 279 271 276 290

155

Women

Men

157 153 156 149 153 152 149 151 146 145 152 153

284

147

271

Premature mortality

Source: Federal Statistical Ofﬁce.

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 93

Proportion of people with high housing costs: Propor-

tion of people living in households spending more than

40% of their disposable household income on housing.

Expenditure on housing comprises the net rent without

heating, ancillary bills, energy costs and spending on the

water supply/wastewater disposal, and, in the case of

owner-occupied housing, investments in maintaining the

value of the housing and interest payments on loans,

minus any housing-related welfare benefits. See note on

the data source “Life in Europe” in Box 7.

20232022202120202019201820172016201520142013201220112010

In percent

14.5

16.1 16.6 16.4 15.9 15.6 15.8

14.5 14.2 13.9

9.0

11.0

11.9

13.0

Proportion of people with high housing costs

Source: Federal Statistical Ofﬁce based on EU-SILC.

400

450

500

550

600

650

202420232022202120202019201820172016201520142013201220112010

In 1,000

580600 585

564 562 564 564 572

589 578

527 536

572

Demand for training places

Supply of training places

581 567 551 544 543 541 547 556

550

497 498

544 563

498 516

556

518

Development of supply of and demand for

training places

Source: Federal Institute for Vocational Education and Training.

Development of supply of and demand for training

places: The availability of training places is composed

of the newly concluded training contracts signed plus

the vacant training places. The (traditional) definition of

demand for training places is the number of newly con-

cluded training contracts plus the applicants still with-

out a place.

94 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

Accessibility of central public service facilities: Propor-

tion of the population which can reach the next super-

market/discounter, post office (only branches with uni-

versal services), primary school, public transport stop

with at least 20 departures a day within 1,000 metres,

the next primary care hospital within 30 minutes and the

next secondary school within 15 minutes by car.

70 and higher

60 to under 70

100 km

40 to under 50

50 to under 60

Up to under 30

30 to under 40

Percentage of population covered in 2022 in percent

München

Stuttgart

Saarbrücken

Wiesbaden

Bremen

Hamburg

Berlin

Magdeburg

Dresden

Hannover

Kiel

Erfurt

Potsdam

Schwerin

Düsseldorf

Mainz

Accessibility of central public service institutions

Source: Federal Institute for Research on Building, Urban Affairs and Spatial

Development (BBSR)

125. In recent years, the German economy has

been hit hard by the COVID-19 pandemic and the

energy price shock in the wake of Russia’s war

of aggression against Ukraine. The economy is

expected to pick up gradually over the course of

this year. At the same time, however, the structural

challenges that Germany as a business location is

facing are becoming ever more apparent. Besides

the requisite transition to climate neutrality, digi-

talisation and increasing geo-economic risks, they

include the now accelerated demographic change,

skills shortages and weak productivity growth.

That is why boosting the German economy and

strengthening its regional attractiveness to secure

broad material prosperity throughout Germany

for both current and future generations, to main-

tain good jobs and successfully drive forward

decarbonisation remain of central importance.

126. The weak economic development of recent

years is reflected in the material prosperity of citi-

zens, measured in terms of gross national income

(GNI) per capita. Although the nominal value of

GNI has risen steadily and significantly in the last

few years, real GNI, adjusted for the sometimes

high price increases, has actually fallen in the

last two years. Standing at €43,843 in 2024, it was

below the 2018 figure. Earned income recorded

a similar trend. Real wages declined in the wake

of the pandemic and the energy crisis. In 2022 in

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 95

particular, there was a sharp slump accompanied

by high inflation rates. In contrast to GNI, how-

ever, real wages rose again in 2023 and 2024, partly

on account of high wage settlements coupled with

declining inflation rates and the increase in the

minimum wage (cf. Item 164). Nevertheless, they

are still below the 2019 figure. By contrast, the loss

in real net wages has already been made up since

2019 (cf. price-adjusted net wages and salaries,

national accounts, Fachserie 18 Reihe 1.1).

127. Labour productivity plays a key role in the

long-term positive development of potential out-

put, wages and the level of material prosperity.

GDP per hour worked is a key indicator of the

efficiency of factor allocation, economic perfor-

mance and the international competitiveness of

an economy. Over the period under review, labour

productivity generally showed a positive trend,

then stagnated in 2022 and declined slightly in

2023 and 2024. The precautionary retention of

employees by companies, known as “labour hoard-

ing”, in which workers are retained for longer peri-

ods despite reduced capacity utilisation in order

to avoid future bottlenecks, leads to lower labour

productivity. Indicators suggest that labour hoard-

ing will decline in 2023 compared to the previous

year, but will still be higher in a long-term com-

parison. Furthermore, labour productivity growth

in Germany and Europe, as well as in many devel-

oped economies, has been weak since the early

2000s (cf. Chapter A). In the long term, labour pro-

ductivity is influenced by various drivers. In par-

ticular, technological progress as a result of inno-

vations and investments in future technologies, a

reduction in bureaucratic hurdles, a suitably qual-

ified skilled workforce, as well as an efficient allo-

cation of production factors between and within

sectors all contribute to increasing labour produc-

tivity.

128. The significant acceleration of productivity

growth plays a decisive role, particularly given

the circumstance of an ageing population. At the

same time, it is vital that the existing potential on

the labour market is exploited to achieve a more

dynamic economic development. In this respect,

the long-term upward trend of the employment

rate across various social groups is contributing

to the future viability of the German economy. In

the case of women, the increased employment of

mothers is particularly decisive. In addition, peo-

ple aged between 60 and 64 have seen a compar-

atively high increase in their employment rate in

recent years. Nevertheless, there is still room for

further increases in the employment rate among

mothers, older people and especially of people

without German citizenship. There is also further

potential in the labour market with regard to the

scope of employment, particularly among these

groups (cf. chapter C.3).

129. The state of an individual’s health is of central

importance for their quality of life and thus for

their ability to participate in social life. However,

good health is also a fundamental prerequisite for

participating in the labour market in old age. The

long-term downward trend in the indicator of

premature mortality before the age of 70 should,

therefore, also be positively highlighted against

this backdrop. In contrast to general life expec-

tancy, this indicator focuses more on the health

of the working population. The mortality rate of

men, in particular, fell over time and approached

the lower mortality rate of women. The prema-

ture mortality rate for women has remained stable

overall over the last few years. In the aftermath of

the COVID-19 pandemic, there was a slight rise in

premature mortality for both women and men,

although this is declining again at the current

margin.

96 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

130. To boost productivity growth, but also in

view of the increasing shortage of skilled labour,

promoting the vocational and academic educa-

tion of young people is essential. The indicator

of skills potential provides an approximation of

the existing formal education qualifications of 30

to 34 year olds. However, this human capital has

been declining proportionately in the respective

cohorts for several years and stood at 78.1% of all

people in this age group in 2023. A closer look at

the qualification structure reveals a level of polar-

isation in the educational level of young adults:

on the one hand, the proportion of people with

academic qualifications and higher vocational

qualifications has been rising for several years

and currently stands at 56.3%. But on the other

hand, this is being not accompanied by a decrease

in young adults who are qualified below upper

secondary level, i.e. who have neither a voca-

tional training qualification nor a higher educa-

tion entrance qualification: standing at 15.9% in

2023, their share remains at a high level by inter-

national standards. The increase in early school

leavers and early leavers from vocational training

in recent years (Item (135)) underlines the unfa-

vourable trend for younger cohorts as well.

131. Many companies are finding it hard to fill

training places, even though the supply of train-

ing places has fallen slightly in 2024 and demand

from applicants has risen slightly. Many applicants

remain unplaced and, at the same time, many

positions remain unfilled. So-called “matching

problems” – the simultaneous coincidence of

unfilled training places combined people who

were unable to find or accept suitable offers

despite these positions being available – play a

major role in unfilled training places.

132. The most efficient possible distribution of

employees in the labour market to increase pro-

ductivity growth, but also with regard to struc-

tural change in the wake of transformation,

requires that employees are willing to move

across different regions. Affordable housing is an

important prerequisite for this. Given these cir-

cumstances, one critical trend of recent years is

a rising proportion of people with high hous-

ing costs. This affects people with low incomes

in particular. In 2023, the proportion of people

with correspondingly high housing costs with an

income below 60% of the median was 43.2%. The

increase in the overall housing cost burden can

be attributed, among other things, to the steep

rise in energy prices as a result of the Russian war

of aggression against Ukraine in 2022. Moreover,

households that are planning to move are facing

higher rental costs. Prices for first-time lettings

and re-lettings have risen significantly more

than existing rents. While this price increase was

previously particularly high in the metropolises,

it has recently spread to other cities and rural

regions as well. People who own their own home

will also face higher costs, particularly in 2022,

due to rising construction and interest costs.

Besides the impact on the mobility of employees,

high housing costs also have a direct negative

impact on quality of life because it means that

fewer financial resources are available for other

expenses or for savings. The indicator does not

yet reflect the relief effect of the Housing Benefit

Plus reform in 2023 (cf. AER 2024), as the income

reference year is 2022.

133. Alongside affordable and high-quality hous-

ing, the accessibility of central public services

plays a key role in the quality of life and attrac-

tiveness of a place of residence, which is also a

relevant factor in attracting skilled labour. What is

also evident in the present study is an urban-ru-

ral divide: 79.2% of their population having good

connections to relevant facilities, independent cit-

ies have significantly better accessibility to facili-

ties of general interest, such as schools, hospitals

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 97

or shopping facilities, than rural areas with 45%.

Compared to previous surveys, the accessibility

of central facilities for services of general interest

is around three percentage points above the pre-

vious year’s level on a nationwide average. This is

primarily due to a statistical effect resulting from

the change in the data basis for the small-scale

population distribution to the 2022 census data. In

previous years, the figure had deteriorated slightly,

particularly in rural areas. This is due to, among

other things, population migration from less well-

served to well-served districts or areas, which, at

the same time, is often associated with a decline in

services of general interest.

98 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

Gender pay gap: Difference in gross hourly earnings of

men and women. The first variable cited is the unadjust-

ed earnings gap, which disregards structural differences

between the gender groups, such as differences of occu-

pation, number of hours worked, education, experience,

employment contracts and the smaller proportion of

women in leading positions. In accordance with the Ger-

man Sustainability Strategy, the pay gap is to be reduced

to a maximum of 10% by 2030. Further to this, the dia-

gram shows by way of comparison the adjusted earnings

gap, which includes the above-mentioned factors influ-

encing wages. It should be borne in mind that informa-

tion is not available about all the factors influencing

wages. There is no information, for example, on career

breaks such as parental leave, care, (involuntary) career

changes or illness. Up to 2022, the data for the adjusted

gaps are only available every four years. The figures as of

2022 are not fully comparable with the preceding years

due to a switch in data source and collection methods.

Early school and training leavers: Proportion of 18 to

24-year-olds compared with the total age cohort who

neither have a university-entrance qualification like the

Abitur nor a qualification to study at technical college

nor a completed vocational training course and who are

not currently receiving training. In accordance with Ger-

many’s Sustainable Development Strategy, this propor-

tion is to be cut to 9.5% by 2030. See note about the

microcensus data sources in Box 7.

Children in all-day care in daycare centres and childmin-

ding services: Children in all-day care on 1 March as a

proportion of all children of the same age cohort on 31

December of the preceding year. All-day care corre-

sponds to an uninterrupted contractually agreed care

period of more than seven hours per day of care in day-

care centres and childminding services. In accordance

with Germany’s Sustainable Development Strategy, the

proportion is to be raised to at least 35% (children aged

0-2) and 70% (children aged 3-5) by 2030.

(II) Social justice and participation

202420232022202120202019201820172016201520142013201220112010

Proportion of age cohort in percent

0 to 2-year-olds

3 to 5-year-olds

32.3 34.9 37.1 39.3 41.7 43.9 44.8 45.5 46.1 47.2 47.9 47.3

11.6 12.9 14.6 15.8 17.5 18.1 18.3 18.5 18.8 19.3 19.6 18.9

47.4

19.3

47.0 47.0

19.7 20.0

Children in all-day care in daycare centres

and childminding services

Source: Federal Statistical Ofﬁce.

20232022202120202019201820172016201520142013201220112010

Proportion of all 18 to 24-year-olds, in percent

11.9 11.6

10.4

9.8 9.5 9.8 10.3 10.1 10.3 10.3

10.2

12.4 12.8 13.1

Early school and training leavers

Source: Federal Statistical Ofﬁce.

20232022202120202019201820172016201520142013201220112010

In percent of male earnings

76 6

Adjusted values

Unadjusted values

22 23 22 22 22 21 20 20 19 18 18

18 18

Gender pay gap

Source: Federal Statistical Ofﬁce.

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 99

Women in executive positions: The proportion of women

on the executive or supervisory board of companies that

are listed and subject to parity-based codetermination.

Last updated: January of each year. By law, a quota of at

least 30% for both women and men applies to superviso-

ry boards of listed companies subject to parity-based

codetermination. In accordance with Germany’s Sustain-

able Development Strategy, the proportion is to be raised

to at least 40%. In the case of the public service, the long

time series shows the proportion of women in executive

positions in the supreme federal authorities (equal

opportunities index). Since the 2022 reporting year, a sur-

vey including the federal agencies has also been made. It

included all jobs with supervisory or managerial responsi-

bilities, but excluded the highest political offices, such as

ministers, parliamentary state secretaries, presidents or

comparable positions. As of 2018, it included missions

abroad. Last updated: 30 June of each year. According to

the Second Act on the Equal Participation of Women and

Men in Executive Positions in the Private and Public Ser-

vice, which entered into force on 12 August 2021, the

equal participation of women and men in leadership

positions in the public service is to be attained by the end

of 2025.

Collective bargaining coverage: Proportion of employees

in companies who, according to the Industry Panel of

the Institute for Employment Research, are subject to a

company or in-house collective agreement. The Industry

Panel is an annual representative survey of around

15,500 companies carried out by the Institute for

Employment Research. In addition to collective bargain-

ing coverage, the percentage of employees in companies

that do not have a collective bargaining agreement but

are guided by collective bargaining agreements is also

shown. In 2020, the survey of collective agreement cov-

erage was slightly different, with further-reaching ques-

tions being asked.

2024202320222021202020192018201720162015

Proportion of women in percent

Companies – executive board

Companies – supervisory board

Civil service

(supreme federal authorities)

21.3 23.8

28.1 30.9 33.9 35.2 35.9 35.6

4.9 6.0 7.1 8.2 9.6 11.5 14.1 16.2

32.6 34.0 35.3 34.3 36.0 36.9 38.9

37.3

20.5

40.8

42.6

45.2

43.2

Civil service (highest federal authorities and

subordinate areas)

21.7

38.5

Women in executive positions

Source: Federal Statistical Ofﬁce, FidAR.

20232022202120202019201820172016201520142013201220112010

Percentage of all employees, in percent

Industry-wide collective agreements

Company collective agreements Total collective bargaining coverage

Orientated towards collective agreements

Collective bargaining coverage

Source: IAB Establishment Panel

100 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

Gini coefficient of disposable income and net wealth:

Gini coefficient of equivalised disposable income: Measure

of the distribution of private household income, here

after redistribution, i.e. after taxes and social transfers,

and on the basis of equivalence weighting according to

the number and age of household members. The figures

range between 0 (perfect equality) and 1 (maximum

in equality). In accordance with Germany’s Sustainable

Development Strategy, the Gini coefficient of equivalised

disposable income should be below the EU average (0.3

index points in 2022) by 2030. See note on the data

source “Life in Europe” in Box 7.

Gini coefficient of net assets: Net assets are defined as

the difference between tangible and financial assets and

the liabilities of private households. The data basis used

is the Distributional Wealth Accounts of private house-

holds – a new, experimental data set. It combines the

data from the wealth survey of the Bundesbank/ECB

(Private Households and their Finances, PHF) with the

quarterly data from the macroeconomic wealth

accounts. The data are made available on a quarterly

basis. The values shown here relate to the second quar-

ter of each year. Further information on the methodolo-

gy is available on the ECB website.

0,2

0,3

0,4

0,5

0,6

0,7

0,8

0,9

202420232022202120202019201820172016201520142013201220112010

Gini coefﬁcient

0.293

0.290

0.283

0.297

0.307

0.301

0.295

0.291

0.311

0.297

0.305

0.312

0.290

0.294

Disposable equivalent income

Net wealth

0.772

0.776 0.784 0.770 0.765 0.764 0.764 0.766

0.764 0.764

0.779 0.765 0.766

0.779

Gini coefficient for income and wealth

Source: Federal Statistical Ofﬁce on the basis of EU-SILC; ZEB.

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 101

Regional income distribution: (1) Average disposable

income of households and private non-profit organisa-

tions in euros per person by district in 2022. The figures

are population-weighted. (2) Gini coefficient (see above)

of the average disposable income of private households

per person across districts.

100 km

In €

18,522 bis 23,628 (80 districts)

> 23,628 bis 24,783 (80 districts)

> 24,783 bis 26,135 (80 districts)

> 26,135 bis 27,588 (80 districts)

> 27,588 bis 40,205 (80 districts)

Regional income distribution

Source: Thünen Institute, National Accounts of the Federal States.

Gini coefficient of regional income

distribution

0.03

0.04

0.05

0.06

0.07

0.08

2022202120202019201820172016201520142013201220112010

Gini coefﬁcient

0.066

0.068

0.066

0.065

0.064

0.062

0.056 0.052

0.053

0.055

Source: Federal and state statistical ofﬁces; own calculations.

102 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

134. Social justice and participation are essen-

tial prerequisites for social cohesion and stabil-

ity. Equal opportunities play a major role here.

This is why promoting this as early as possible is

an important task for the state. Equalising edu-

cational opportunities and, in particular, early

childhood educational opportunities regardless of

social background can ensure that all people are

able to fulfil their potential. What is also impor-

tant in the later phase of working life and beyond

is ensuring equal participation in prosperity for all

citizens. Alongside fair framework conditions on

the labour market, this also includes approaches

to reduce social inequalities. This chapter covers

various aspects of social justice and participation.

135. Education and training are regarded as key

instruments for promoting equal opportunities

and social mobility across generations. It is an

important prerequisite for living a self-deter-

mined life. However, an unfavourable trend is evi-

dent in this respect: At 13.1% in 2023, the propor-

tion of early school leavers and training leavers

without a high school diploma, entrance qualifi-

cation for universities of applied sciences or com-

pleted vocational training is at an internationally

high level (cf. Item 3). This is particularly the case

for men (15.3%, women: 10.8%). This trend must

be viewed critically from both a macroeconomic

and an individual perspective, as it not only exac-

erbates the shortage of skilled labour, but it also

restricts the social participation of individuals

in later life. Whether the development of recent

years signifies a longer-term trend reversal cannot

yet be deduced from the figures available. With

regard to the educational level of the labour force,

however, it should be seen as an early warning

indicator. For employees aged between 30 and 34,

it shows that there is an increasing proportion of

highly qualified people. At the same time, how-

ever, the proportion of people educated below

upper secondary level and who thus have neither

a vocational training qualification nor a university

entrance qualification (cf. Item (130)) has risen. In

order to realise long-term growth potential, there-

fore, high-quality school education is required.

The deterioration in the PISA results in recent

years underlines the need for action.

136. The first building blocks for educational suc-

cess are laid in early childhood. There has been a

long-term rise in the proportion of children in

all-day care in day care centres and with child-

minders: from 2010 to 2019, the proportion of

children under the age of 6 in childcare rose

sharply. In the wake of the COVID-19 years, how-

ever, this trend has slowed significantly or come

to a standstill. In 2024, the proportion of children

over the age of 3 in all-day childcare was almost

at the same level as in 2019. A slight rise in chil-

dren under the age of 3 has been recorded again

in the last two years. On the whole, however, there

was a gap of almost 15 percentage points between

parental demand for childcare and the enrolment

rate for children under the age of 3 in 2023. There

are clear differences in the childcare enrolment

rate among children from families with a history

of immigration, as well regional differences, with

significantly higher childcare rates in eastern Ger-

man regions. Particularly with regard to equal

opportunities, what must be taken into account

is the fact that children from socially disadvan-

taged households in particular have so far made

disproportionately low use of state-funded child-

care, although they are the ones who could benefit

most from it.

137. Reliable childcare also increases the earning

potential of parents, particularly mothers. Despite

a rising employment rate and an increasing num-

ber of mothers working, there are still major dif-

ferences between the sexes. Needs-orientated

child day care in particular allows mothers more

time for participating in employment. This boosts

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 103

portion of women in company’s management can

go hand in hand with a lower pay gap between

women and men in the same company.

139. However, framework conditions that allow

equal labour market participation are not only

crucial for reducing existing gender differences.

Generally fair competition not only on goods

markets but also on labour markets is a basic pre-

requisite for broad participation in employment.

The collective bargaining partners and the bal-

ancing of interests between staff and employers

have an important role to play here. The collective

bargaining coverage of companies and employees

can be used as an indicator of participation in the

labour market in terms of fair and balanced work-

ing conditions. An overall decline in the long term

is evident here. In 2010, company or sectoral col-

lective agreements still covered 60% of employees.

This proportion had fallen to 49% by 2023. At the

same time, however, there has been a rise in the

number of companies that are guided by collec-

tive agreements.

140. Participation in the labour market and thus

the realisation of individual opportunities is also

reflected in the distribution of income. Over the

last 10 years, this distribution has been basically

characterised by stability, which has been sup-

ported, not least, by increases in the minimum

wage. There has even been a slight decline in ine-

quality as regards the distribution of gross income,

to which the shrinking of the low-wage sector

has also contributed. Income inequality is a fun-

damentally accepted component of a dynamic

market economy. However, even under fair condi-

tions, market processes do not necessarily produce

a fair result. Social security, such as in the event

of inactivity or illness, thus plays a decisive role in

the social participation of all citizens. Disposable

household income, i.e. income after taxes, levies

and transfers, shows a constant distribution over

their career opportunities and their economic

independence and has the effect of increasing

their income in both the short and long term. Par-

ticularly in Germany, women experience a rela-

tively large loss of income after the birth of a child

compared to other countries, mainly because they

are more likely to work part-time. This can also

result in a loss of human capital. Women’s lower

level of employment, especially that of mothers,

is reflected not only in total income, but also, to

some extent, in the hourly wages of women and

men. While a significant reduction in the gender

pay gap from 22% to 18% was achieved between

2010 and 2020, this figure has stagnated since

then. High pay gaps are typically observed in areas

with a high share of industry in value added, par-

ticularly in the south and, to some extent, also

in the west of Germany, while the gap is even

negative in some eastern German districts. The

adjusted pay gap, which takes into account part-

time work and other factors, such as educational

qualifications, career choice and professional

experience, has also remained stable at between

6% and 7% in recent years.

138. On the other hand, sustained progress has

been made in appointing female managers. Thus,

the proportion of women in executive positions

has increased significantly in recent years, both

in the public as well as in the private sector. Since

2015, the proportion of women on management

boards has more than quadrupled to 21.7%. The

proportion of women on supervisory boards has

almost doubled to 38.5%. Standing at 45.2% in

2023, the proportion of women and men in man-

agerial positions in the federal public sector is

almost equal. As an analysis carried out by the

Institute for Employment Research (IAB) shows,

the proportion of women at the second level of

management is also relatively high in the private

sector at 41%, but has been stagnating for several

years. Empirical studies show that a higher pro-

104 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

to bear in mind that statutory entitlements from

pensions, among other things, are not depicted.

Although pension entitlements, unlike other

assets, cannot be lent or bequeathed, old-age pro-

vision is an important pillar of wealth accumula-

tion, particularly in the lower end of the wealth

distribution. For a detailed description and statis-

tical categorisation of wealth development and

distribution, please refer to the Federal Govern-

ment’s Report on Poverty and Wealth.

141. Differences in income or wealth exist not

only between individuals, but also between indi-

vidual regions. Equivalent living conditions in all

regions of Germany are central aspect of social

cohesion. Besides services of general interest (cf.

Item 133), this includes equalisation of income,

even if a certain disparity in regional income dis-

tribution is unavoidable due to structural differ-

ences. In Germany, private households in the top

20% of districts with the highest incomes had an

average of €29,572 per capita in 2022, compared

to €22,410 in the lowest-income 20% of districts.

Over the period under review, however, there was

an overall equalisation process in terms of dis-

posable income, although the Gini coefficient of

regional income distribution has recently risen

again slightly. Eastern German regions in particu-

lar have recorded above-average income growth

since 2010. Furthermore, average incomes have

also grown relatively strongly in many western

German regions that are traditionally consid-

ered structurally weak, such as along the former

inner-German border, in the north-west of Lower

Saxony and in Schleswig-Holstein. When looking

at nominal incomes, it is not possible to draw any

direct conclusions about the distribution of con-

sumption opportunities since the different price

levels for housing and food, among other things,

in the various regions are not taken into account.

As they are usually higher in high-income, often

urbanised regions rather than in low-income or

time: at 0.29 points, the Gini coefficient of equiv-

alised disposable income is stable within the tar-

get value of the average EU value set in the DNS.

In Germany wealth is far more unevenly dis-

tributed than income. The Gini coefficient of

net wealth, which was newly included this year,

remained at a high level of over 0.7 overall and

changed little over time, although it has fallen

slightly since 2014. Households with lower real,

financial or durable assets were able to record a

nominal increase in assets in the years after 2014.

Nevertheless, the wealthiest 10% of all house-

holds continue to hold a good 60% of total assets.

When interpreting the available data on wealth,

a number of aspects must be taken into account:

firstly, due to a lack of register or administrative

data, information on the distribution of wealth

in Germany is only obtained from surveys of ran-

dom samples of the population, which are not

collected annually. In addition, participation in

the surveys is voluntary, which means that there

may be some underreporting of financial assets,

for example, especially with regard to those with

the greatest wealth. The experimental data source

used here, the distribution-based wealth balance

sheet of the Bundesbank and the European Cen-

tral Bank (ECB), addresses some of the existing

data gaps. Firstly, underreported wealth in sur-

veys can be estimated by linking survey data with

the development of overall economic assets. Sec-

ondly, this approach allows for more up-to-date

and regular reporting by extrapolating the survey

data. However, these procedures are associated

with additional statistical uncertainty. For exam-

ple, extrapolation does not take individual wealth

decisions into account, which means that changes

in behaviour stimulated by political measures, for

example, may only be reflected in the data on the

basis of new survey results with a time lag of up to

five years. Aside from methodological challenges,

from a conceptual point of view it is important

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 105

remote areas, differences in income are, at least,

partially offset by differences in the cost of liv-

ing. Furthermore, living conditions and thus local

well-being are influenced by a variety of other

factors besides income. As part of the Equivalence

Report, the Federal Government has comprehen-

sively analysed various aspects and their develop-

ment over time (cf.Box 3).

106 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

(III) Ecological limits

Greenhouse gas (GHG) emissions: Total GHG emissions

expressed as CO2 equivalents (excluding carbon emis-

sions from land use, changes in land use and forestry).

Target value for 2030 (base year 1990): at least -65%, for

2040: at least -88%. Net greenhouse gas neutrality is to

be achieved by 2045. Here, the sector of land use, land-

use change and forestry (LULUCF) is to make a manda-

tory and growing contribution (cf. section 3a(1) Federal

Climate Change Act).

Share of renewable energy in gross final energy con-

sumption: Use of renewable energy in relation to gross

final energy consumption. Gross final energy consump-

tion covers energy consumption by the end-user, trans-

mission losses and self-consumption by the energy gen-

eration sector.

Final energy productivity (1) and final energy consump-

tion (2): (1) Value creation per deployed unit of final

energy, i.e. the energy available e.g. as thermal or electri-

cal energy to end-users to make goods or for use in

households, excluding conversion, flaring, storage, grid

losses and in-house consumption by generating installa-

tions. (2) See previous explanation.

20232022202120202019201820172016201520142013201220112010

In percent

11.7 12.5 13.5 13.8 14.4 14.9 14.9 15.5 16.7 17.3

19.1 19.3 20.9 21.6

Proportion of renewable energy in gross final

energy consumption

Source: Working group on renewable energy statistics, until 2020 in accordance

with EU Directive 2009/28/EC, from 2021 in accordance with Directive (EU)

2018/2001.

100

105

110

115

120

125

130

135

140

20232022202120202019201820172016201520142013201220112010

Index, 2008 = 100

Final energy productivity

Final energy consumption

106 106 104

112 111 112 114 117 118 121 121

100

96 97 99

94 97 97 98 97 97

91 94

127

132

91 88

Final energy productivity and final energy

consumption

Source: Federal Statistical Ofﬁce, Länder Working Group on Energy Balances,

Working group on renewable energy statistics.

500

550

600

650

700

750

800

850

900

950

1,000

20232022202120202019201820172016201520142013201220112010

Million tonnes of CO

equivalent (excluding LULUCF)

928 904 914 931

891 899 895 880

852

797

732 760 750

672

Greenhouse gas emissions

Source: German Environment Agency (UBA).

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 107

Circular material use rate: Share of material recycled and

fed back into the economy (secondary raw materials) in

overall material use

Industry investment in climate action: Investments by

the goods-producing sector (excluding construction) in

climate action, in € million. This field includes invest-

ments in facilities, devices and measures to avoid and

reduce the emissions of Kyoto greenhouse gases, to use

renewable energy, and to boost energy efficiency and

save energy.

Total raw material productivity and raw material input:

Value of goods supplied for final use (domestic con-

sumption, domestic investment and exports) in relation

to the mass of the raw materials used for their produc-

tion in Germany and abroad.

500

1,000

1,500

2,000

2,500

2022202120202019201820172016201520142013

In € million

Energy efﬁciency increases and energy saving

Use of renewable energy

Avoidance and mitigation of emissions of Kyoto greenhouse gases

Industry investment in climate action

Source: Federal Statistical Ofﬁce.

100

105

110

115

120

125

130

202120202019201820172016201520142013201220112010

Index, 2010 = 100

100 98

102 102 103

107

106 109 110

Value of consumption, investment and exports (price-adjusted)

Input of raw materials for consumption, investment and exports (RMI)

Total raw material productivity

113

112 115

Total raw material productivity and raw

material input

Source: Federal Statistical Ofﬁce.

20232022202120202019201820172016201520142013201220112010

Proportion of secondary raw materials in percent

11.2 10.6 11.0 11.1 11.2 11.6 11.8 11.6 12.0 12.4 12.8 12.2 12.5

13.9

Circular material use rate

Source: Eurostat.

108 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

Emissions of air pollutants: Unweighted average of the

indexes of national emissions of the five air pollutants

sulphur dioxide (SO2), nitrogen oxides (NOx), ammonia

(NH3), volatile organic compounds (NMVOCs) and par-

ticulates (PM2.5). In accordance with Germany’s Sustain-

able Development Strategy, the emissions of air pollut-

ants are to be cut by 45% by 2030 from the 2005 level.

Expansion of settlement and transport area: Average

daily expansion (four-year moving average) of the area

used for settlement and transport. The data basis is the

official land survey by the Federal Statistical Office. From

reference year 2016, this is based on the Official Land

Germany’s Sustainable Development Strategy, the

expansion of settlement and transport areas is to be

restricted to below 30 hectares a day by 2030, and is to

reach an area consumption of net-zero by 2050 (circular

land use economy).

100

2019

2022

2018

2021

2017

2020

2016

2019

2015

2018

2014

2017

2013

2016

2012

2015

2011

2014

2010

2013

2009

2012

2008

2011

2007

2010

Four-year moving average in hectares per day

74 73 69 66 62 58 56 52 54 55 52

Expansion of settlement and transport area

Source: Federal Statistical Ofﬁce.

Biodiversity and landscape quality: Index (coefficient in

per cent) of the nation-wide statistics of the presence of

selected representative bird species in main habitat and

landscape types. The overall indicator is calculated from

a weighted total of the partial indicators of farmland,

forests, settlements and inland water bodies. The partial

indicators of coasts and seas (currently only available

until 2018) and Alps are placed by the side of the overall

indicator; the inclusion of the Alps partial indicator is

temporarily suspended.

100

2019201820172016201520142013201220112010

Index, 2030 = 100

79.5 77.3 80.3

76.9 75.9

80.0 80.0

75.6 73.7 75.3

Biodiversity and landscape quality

Source: Federal Agency for Nature Conservation (BfN).

100

120

2022202120202019201820172016201520142013201220112010

Index, 2005 = 100

SO2NOXNH3NMVOC PM2,5

Emissions of air pollutants

91.5 88.2 87.8 86.6 83.5 82.8 80.1 78.2 75.3 71.1 65.8 66.0 65.6

Emissions of air pollutants

Source: Federal Environment Agency

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 109

Nitrate in groundwater: Proportion of measuring points

in the EUA monitoring network at which the annual

average limit of 50 milligrams of nitrate per litre in

groundwater is not exceeded. In accordance with Ger-

many’s Sustainable Development Strategy, the threshold

value is to be met at all metering points by 2030.

20232022202120202019201820172016201520142013201220112010

Proportion of measuring points at which threshold value is not exceeded,

in percent

81.7 82.0 81.0 81.4 81.8 81.0 81.8

83.1 82.7

84.2 84.1 84.0 84.0 85.0

Nitrate in groundwater

Source: German Environment Agency and Länder core indicators initiative based

on data from Federation/Länder working group on water.

142. Intact ecosystems, including the associated

“ecosystem services”, such as water filtration, nat-

ural flood protection and plant pollination, are an

essential prerequisite for human well-being and

economic development. This is why respecting

ecological boundaries and protecting the natural

foundations of life in the interests of current and

future generations is essential. Besides attempts

to limit the rise in the global average tempera-

ture, further significant ecological challenges are

the extinction of species due to habitat destruc-

tion, the overuse and pollution of environmental

media such as water, air and soil and the con-

sumption of biotic and abiotic raw materials.

Against this backdrop, this chapter covers various

aspects of climate, resources and nature conser-

vation. Detailed reporting on the status of eco-

systems in Germany is regularly published by the

Federal Statistical Office as part of the ecosystem

accounts (Ecosystem Atlas of Germany). In 2025,

data on ecosystem services will also be provided

for the very first time, highlighting the considera-

ble non-monetary benefits of nature for the econ-

omy and society.

143. Global greenhouse gas emissions are notice-

ably accelerating climate change. The associated

consequences, such as changes in precipitation

patterns, an increasing frequency and intensity of

extreme weather events and rising sea levels, are

becoming increasingly noticeable. Limiting the

global temperature rise to well below 2 degrees

Celsius and preferably 1.5 degrees Celsius is one

of the key challenges facing the global commu-

nity. Germany’s contribution to achieving the

Paris climate targets is set out in the Climate Pro-

tection Act and in the obligations that Germany

must fulfil under EU climate legislation. Accord-

ing to the Climate Protection Act, greenhouse gas

emissions are to be reduced to net zero by 2045.

Developments in recent years demonstrate the

success of the comprehensive efforts made by

society as a whole to protect the climate. In 2023,

greenhouse gas emissions fell by more than 10%

compared to the previous year, to 672 million

tonnes of CO2 equivalents. This corresponds to a

decrease of 46.3% compared to the base year of

1990.

110 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

144. However, the recent declines are also due to

weaker production in energy-intensive industries,

not least as a result of the energy price shock trig-

gered by the Russian war of aggression in 2022

and 2023. Besides this unintended development,

the expansion of renewable sources of energy

in particular played a key role. Electricity from

renewable energy sources covered more than

half of gross electricity consumption for the first

time ever in 2023. In 2024, this figure rose again to

around 54%. The share of renewable energies in

gross final energy consumption, which includes

heat and fuels besides electricity, also showed

a clear upward trend in the last two years after

only a slight increase from 2020 to 2021, reach-

ing 21.6% in 2023. Besides switching to renewable

energy sources, a second pillar of the energy tran-

sition is increasing energy efficiency. Increasing

efficiency is ecologically necessary, especially as

long as fossil fuels continue to be used. However,

the efficient use of energy as a production fac-

tor is also expedient for economic reasons. Final

energy productivity, i.e. the ratio of value added

to energy input, has increased in the last few years.

While the increase was, for many years, mainly

based on higher value added with rather stable

absolute final energy consumption, this ratio has

also shifted towards falling energy consumption

in recent years. However, temporary price peaks,

changes in the economic structure, and falling

industrial production also play a certain role in

this respect.

145. The transition to a climate-neutral economy

requires new technologies, innovations and corre-

sponding investments, which must also be made

to a large extent by the private sector. Increases

have been recorded here in recent years, and

investments to convert industrial production pro-

cesses have increased substantially since 2019. In

industry alone, which is responsible for almost a

quarter of greenhouse gas emissions in Germany,

investments in climate protection measures in

2022 amounted to just under €5 billion in nom-

inal terms, a significant increase since 2013. The

largest share is channelled into the use of renew-

able energies, followed by measures to increase

energy efficiency and save energy. In the future,

however, it will increasingly depend on far-reach-

ing, disruptive technological innovations and

their scaling across the board in order to success-

fully implement the transformation. According to

the International Energy Agency (IEA), more than

a third of CO2 savings by 2050 will come from

technologies that are currently still in the demon-

stration or prototype phase.

146. Alongside climate protection, environmental

protection and nature conservation are the second

main pillar of compliance with ecological limits.

Both are linked to each other through interac-

tions. One thing that unites the two areas is the

need to reduce the use of environmental media.

The raw materials used to produce goods play a

significant role here. On the one hand, many abi-

otic raw materials such as fossil fuels, ores and

other mineral resources are finite; on the other,

their extraction and processing can cause environ-

mental damage. Consequently, it is essential that

raw materials are used efficiently and that mate-

rial cycles are closed. Efficiency, as measured by

the total raw material productivity shown here,

has increased over the period under review, and

the absolute use of raw materials has also been on

a downward trend since 2018. A significant lever

for reducing the demand for primary raw materi-

als is the increased use of secondary raw materials,

i.e. materials that can be reused and returned to

the economy. Even taking into account rising raw

material prices and (critical) import dependencies,

strengthening the circular economy can open up

opportunities for growth, employment and com-

petitiveness. Overall, the circular material use

rate, i.e. the share of secondary raw materials in

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 111

overall material use, grew continuously but only

slightly in Germany between 2010 (11.2%) and

2023 (13.9%).

147. The change in environmental conditions is

also reflected in the state of ecosystems and the

associated biological diversity (biodiversity). A

high diversity of species, habitats and genetic var-

iations contributes to more stable and resilient

ecosystems due to a lower susceptibility to distur-

bances. This also leads to greater adaptability to

the consequences of climate change. By contrast,

the loss of biodiversity can exacerbate climate

change and the associated risks. The biodiversity

indicator biodiversity and landscape quality,

which records the population sizes of selected rep-

resentative bird species in various types of utilisa-

tion and landscapes, reveals that populations have

declined overall in the last ten reporting years

(up to 2019). A noticeable decline was recorded

in particular in agricultural land, which is signif-

icant in terms of area. Populations on coasts and

in seas also show a negative trend, whereas inland

waters, forests and settlements have slightly to

noticeably higher bird populations compared to

2010, with fluctuations over time. The next update

of the indicator with a data series up to 2022 will

take place in summer 2025, after which an annual

update will take place.

148. Land use and land conversion also have an

impact on biodiversity and ecosystem services as

a whole. Until 2019, the trend of newly utilised

settlement and traffic areas demonstrated a clear

decline; since then, it has stagnated. In 2022, 52

hectares a day were being taken up as new settle-

ment and traffic areas. A circular land use econ-

omy including redensification, land recycling,

unsealing and multiple use of land (multifunc-

tional land use) with the goal of achieving net zero

land consumption has, therefore, not yet been

achieved.

149. With regard to the pollution of environ-

mental media, no further improvement has been

achieved in recent years either. The decline in the

emissions of air pollutants observed since 2016

has recently slowed down. At the same time, the

individual air pollutants show different devel-

opments. While sulphur dioxide (SO2) and par-

ticulate matter (PM2.5) have actually risen, which

is due, in part, to the temporary increase in the

use of coal as an energy source as a result of the

war in Ukraine, the values for nitrogen oxides

(NOx) and ammonia (NH3) have recently contin-

ued to fall. Pollutants are also released into water.

This affects both surface water and groundwater,

the most important drinking water resource. In

particular, diffuse sources of nitrate input from

agriculture ensure that the threshold value (50

mg per litre) for nitrate in groundwater is not

always met. While is true that the frequency of

increased nitrate contamination of groundwater

has decreased since 2010, i.e. the threshold value

is being met at more and more measuring points,

in 2023, however, 15% of the measuring points

still showed annual average values that were too

high. However, the value improved slightly after

remaining relatively unchanged at around 16% for

several years. The sometimes long residence and

flow times of the groundwater and slow chemical

and biological processes, which delay the effec-

tiveness of the measures taken, must be taken into

account.

112 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

(IV) Future viability of the state and the economy

Gross fixed capital formation: Describes the value in

nominal terms (at current prices) of assets acquired by

domestic economic units to use in the production pro-

cess for more than one year. They comprise equipment,

buildings and other facilities. The indicator shows the

proportion of gross fixed capital formation (broken down

into the state sector and non-state sectors) of nominal

GDP. This proportion is also called the investment ratio.

Private and public spending on research and develop-

ment: “Research and experimental development (R&D)

comprise creative and systematic work undertaken in

order to increase the stock of knowledge – including

knowledge of humankind, culture and society – and to

devise new applications of available knowledge” (defini-

tion from the OECD’s 2015 Frascati Manual). Expendi-

ture on R&D is a subset of gross fixed capital formation.

The Federal Government aims to boost the proportion

of GDP spent on research and development each year to

3.5% by 2025.

202420232022202120202019201820172016201520142013201220112010

Proportion of GDP in current prices, in pertcent

Non-state sectors

State sector

16.6 17.4 17.5 17.1 17.4 17.4 17.6 17.7 18.2 18.5 18.3

2.6 2.6 2.5 2.4 2.3 2.4 2.4 2.5 2.6 2.7 3.0 2.9

18.3 18.9

2.8

18.7

2.8 2.9

17.9

Gross fixed capital formation

Source: Federal Statistical Ofﬁce, National Accounts.

2.5

2.7

2.9

3.1

3.3

3.5

20232022202120202019201820172016201520142013201220112010

Spending as a percentage of GDP

2.68 2.75

2.82 2.78 2.82 2.88 2.88

2.99

3.05 3.11 3.09 3.08 3.07 3.11*

Private and public spending on research

and development

Source: Federal Statistical Ofﬁce, Länder accounts, Stifterverband Wissenschafts-

statistik; *preliminary calculations

20232022202120202019201820172016201520142013201220112010

Percentage of all companies

66.9

61.9

57.0 56.7 56.4 56.3 56.3

58.4

60.5

54.6 55.6 54.3

50.7 51.0

Innovator rate

Source: Leibniz Centre for European Economic Research (ZEW).

Innovator rate: Proportion of companies which, within

the last three-year period, have introduced at least one

product or process innovation, as a percentage of all

companies. Figures for 2006 to 2016 based on definition

of product and process innovations in the 4th edition of

the Oslo Manual (2018). All figures extrapolated to the

total of companies with five or more employees in Ger-

many

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 113

Broadband availability: Development of the technically

installed broadband availability for households in Ger-

many for gigabit connections (≥ 1,000 Mbit/s) via pure

optical fibre networks (FTTB/H), cable TV (HFC) and all

grid-based technologies. Figures until 2020 end of year;

figures from 2021 onwards mid-year. The Federal Gov-

ernment Gigabit Strategy aims to supply all households

and companies with optical fibre connections by 2030.

2024202320222021202020192018201720162015

Percentage of households with the respective connection type

27.3

43.2

59.2

62.1

68.0

23.7

37.8

53.5 56.5 59.1

6.7 7.1 8.0 9.0 11.8 14.5 15.4 18.2

Gigabit-capable optical ﬁbre (FTTB/H)

Gigabit-capable cable (HFC)

Gigabit connections (≥ 1,000 Mbit/s) total

28.2

35.7

61.9

73.6

62.3

76.5

Broadband availability

Source: Broadband Atlas of Federal Ministry for Digital and Transport.

Startups, percentage of startups by women and percent-

age of innovative startups: Number of people starting up

in business per 10,000 of the working population aged

between 18 and 64 in Germany as a percentage. Startup

entrepreneurs are people who have started out in full-

time or part-time commercial or freelance self-employ-

ment within 12 months prior to the interview with the

KfW Startup Monitor. The sample size is 50,000 people.

Proportion of innovative startups: Based on the self-as-

sessment of whether the business activity brings innova-

tions to market maturity.

New startups by women: The proportion of startups

founded by women.

200

400

600

800

1,000

20232022202120202019201820172016201520142013201220112010

In thousand In percent

835 775

868 915

763

672

557 547 605 537 607 550

Proportion of startups

(left-hand axis)

938

568

100

38 42 39 43 43 43 40 37 40 36 38 42 37

Proportion of startups by women (right-hand axis)

914 11 13 13 13

15 10

Proportion of innovative

startups (right-hand axis)

Startups, proportion of startups by women and

proportion of innovative startups

Source: KfW Entrepreneurship Monitor.

Share of world trade in research-intensive goods: Share

of German exports of R&D-intensive goods in terms of

global exports of R&D-intensive goods.

2023202220212020201920182017201620152014201320122011

Percentage of global R&D exports

12.3 11.7 11.8 11.8 11.4 11.6 11.3 11.2 10.9 10.4 10.1 9.6 9t5

Share of world trade in research-intensive

goods

Source: UN Comtrade database, research September and November 2023 –

Calculations and estimates by the Centre for Economic Policy Studies (CWS) at

Leibniz Universität Hannover, Schiersch and Gulden (2024).

114 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

Tax ratio and public spending ratio: The tax ratio is the

tax revenues of the entire state in relation to GDP on the

basis of the internationally harmonised OECD Revenue

Statistics. Breakdown by taxes to incomes and profits of

individuals and companies, taxes on goods and services,

and asset-related taxes in line with the OECD Revenue

Statistics. The public expenditure ratio is also the ratio of

government expenditure to GDP as defined in the

National Accounts; provisional figures for the years 2021

to 2023 as at August 2024.

20232022202120202019201820172016201520142013201220112010

Note: The tax ratios shown here differ slightly from the ratios published in the latest OECD publication

“Revenue Statistics 2024”, as the GDP ﬁgures from before the summer audit of 2024 were still used for

Germany. The basic development over time is very similar when the new GDP ﬁgures are taken into

account.

Taxes on income, proﬁts and capital gains

Taxes on goods and services

Property-related taxes

Tax ratio

Public spending ratio

(government spending in per cent)

Government tax revenue/government expenditure as a percentage of GDP

21.6 22.3 22.9 23.3 23.2 23.6 23.8 23.8 24.2 24.3 23.3 24.6

48.1 45.3 45.1 45.2 44.5 44.5 44.7 44.6 44.7 45.6

51.1 50.7

24.5 23.1

49.0 48.4

Tax ratio and public spending ratio

Source: Federal Ministry of Finance, OECD Revenue Statistics.

State fiscal balance: Difference in income and expendi-

ture of the state in relation to nominal GDP (state: Fed-

eration, Länder, municipalities, social insurance funds,

incl. additional budgets; definition from National

Accounts). The debt-stabilising fiscal balance describes

the theoretical fiscal balance which would keep the ratio

of public-sector debt to GDP stable. The debt-stabilising

fiscal balance can be negative if GDP expands more than

the debt.

-5

-4

-3

-2

-1

202420232022202120202019201820172016201520142013201220112010

In percent of GDP

Net lending/borrowing stabilising

the debt ratio

Actual/expected ﬁnancing balance

State fiscal balance

Source: Federal Ministry of Finance.

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 115

Government debt-to-GDP ratio: Public debt in percent-

age of GDP as defined in Maastricht Treaty with a target

of 60% at most.

100

202420232022202120202019201820172016201520142013201220112010

In relation to GDP in current prices in percent

81.0 78.5 79.8 77.4 74.5 71.2 68.3 64.0 60.8 58.7

68.0 68.1 65.0 62.9 63¼*

Government debt-to-GDP ratio

Source: Federal Statistical Ofﬁce, *Projection by Federal Ministry of Finance.

Credit/GDP gap: Development of volume of credit given

by domestic banks and money market funds to house-

holds and non-financial companies in relation to GDP.

The credit/GDP gap is defined as the cyclical deviation

of the quotients from its long-term trend value (in per-

centage points). A positive gap shows that the volume of

credit has risen more strongly than economic output. It

can indicate excessive credit growth and thus cyclical

risks for financial stability.

-12

-10

-8

-6

-4

-2

202420232022202120202019201820172016201520142013201220112010

In percentage points

Credit/GDP gap

Source: Federal Financial Supervisory Authority.

150. The current structural economic challenges

(cf. Chapter A) illustrate the importance of set-

ting a long-term course for the competitiveness

and future viability of Germany as a place where

one can do business. In order to secure the coun-

try’s future prosperity, investments and structural

reforms are required, especially in areas with an

impact on the future, such as education, science,

research, innovation, digitalisation, infrastructure

and decarbonisation. The state also has a key role

to play here. The aim is to improve the harmoni-

sation of sound financial management on the one

hand and the facilitation on of necessary invest-

ments on the other.

151. Gross fixed capital formation is a corner-

stone for the dynamic development of an econ-

omy. The digital and green transformation of the

German economy in particular calls for a huge

amount of investment. At the same time, larger

investments can also contribute to higher growth

rates in the short term, alongside modernising

116 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

the capital stock as part of stronger overall eco-

nomic demand. The investment ratio in Germany

has risen overall since 2010, but is currently wan-

ing. This is due, in particular, to a proportionate

decline in private investment, which, at just under

90%, accounts for the greater share of all invest-

ment in Germany. Despite its lower share, public

investment is a key element for the development

of growth potential and can incentivise additional

private investment. Gross public investment

rose slightly year-on-year to 2.9% cent in 2024,

although it has been below the EU average in

recent years.

152. As well as capital stock, new technologies

and innovations also play a decisive role in

increasing future productivity and competitive-

ness. Private and public expenditure on research

and development (R&D), also measured in rela-

tion to GDP, is accordingly a key investment.

Today’s expenditure on R&D is representative of

future innovations and can thus contribute to

productivity development, socio-ecological trans-

formation and securing Germany’s international

competitiveness. Since 2010, the ratio has risen

from an initial 2.68% to 3.11% of GDP in 2019 and

it attained this level again in 2023 after a decline

in the years from 2020 to 2022. The greater part of

private R&D expenditure, which accounts for two

thirds of all R&D expenditure in Germany, is spent

by large companies in sectors with high-value

technologies and is primarily geared towards

applications. Manufacturing sectors with high

R&D expenditure include the automotive indus-

try, the electrical industry, mechanical engineer-

ing and the pharmaceutical and chemical indus-

tries. Also worth mentioning are high levels of

investment in R&D by large companies in infor-

mation and communication technologies as well

as professional, scientific and technical services.

In addition, a smaller proportion of this expendi-

ture is covered by SMEs and startups, many of

which produce pioneering innovations.

153. The results of these research endeavours are

reflected in the innovator rate, which measures

the proportion of companies that have introduced

product or process innovations in the last three

years. In contrast to R&D expenditure, however,

this reveals a rather negative long-term trend. In

2023, it stabilised and stood at 51.0% (compared to

50.7% in 2022). However, it is still well below the

figures for 2019 to 2021 (54.6%, 55.6% and 54.3%

respectively).

154. Innovations often originate in newer com-

panies that represent a key driver of future eco-

nomic growth through new concepts, processes

and ideas. Disruptive innovations in particular

mostly come from young companies and startups

and are of major importance with regard to future

increases in productivity and the socio-ecologi-

cal transformation. The number of startups has

stabilised between 550,000 and 600,000 startups a

year since the end of the 2010s. Start-up figures of

well over 1 million, as they sometimes occurred in

the early 2000s, have not been reached since those

days. At 13% in 2023, the proportion of innova-

tive startups in which an innovation is brought

to market maturity is not far from the average

figure for recent years and reveals no clear trend.

In contrast, the proportion of startups founded by

women reached a high of 44% in 2023.

155. The value for the share of world trade in

research-intensive goods has declined in recent

years: after reaching 12.3% in 2011, the share fell

to 9.5% in 2023. The decline in this proportion

does not necessarily equate to an absolute weak-

ness of the German innovation landscape, but it

does mean a relative decline in competitiveness

in this area. In parallel to expenditure on R&D,

specialisation in high-quality technology goods in

the areas of motor vehicles and engines as well as

mechanical engineering products is evident.

I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY 117

156. Nowadays, productivity-enhancing inno-

vations are also being generated in digital areas

in particular. In this context, a powerful digital

infrastructure is of particular importance. It not

only forms the basis for Industry 4.0, but also for

productive services (Internet of Things, immersive

applications) and the use of artificial intelligence

and is, therefore, an important prerequisite for

successful economic development. As an indica-

tor of the digital infrastructure, the development

of broadband availabilty has revealed a positive

trend in recent years, with a continued need to

catch up in terms of fibre optic expansion. Over-

all, 76.5% of households will have access to giga-

bit-capable broadband by 2024 (mid-year). This

represents an increase of around three percentage

points in the last reporting year. As of June 2024,

35.7% of households and 41.2% of companies had

a fibre optic connection available to them. With

a view to the use of digital infrastructure for cor-

responding applications, Germany is currently

above the EU average when it comes to the use of

AI in companies, for example, but below the EU

average when it comes to the use of cloud tech-

nologies. Viewed overall, there is still a large gap

to the targets set for 2030 (Germany 2024 country

report by the European Commission on the Digi-

tal Decade).

157. Besides investments in infrastructure, dig-

italisation and climate protection, the state ful-

fils other tasks to enable orderly private sector

activity, for example by providing security, justice

and administration or future-oriented education

spending. In times of crisis, such as during the

COVID-19 pandemic or the energy crisis, dedi-

cated and temporary government support meas-

ures are also required to maintain potential out-

put and cushion demand-side distortions. This is

exemplified by the public spending ratio, which

represents government spending in relation to

GDP. This ratio was slightly higher in the crisis

years since 2020, but has recently fallen back to

48.4% in 2023, only slightly above the level in the

early years of the millennium. A look at the federal

budget in recent years reveals a slight rise in the

proportion of future-oriented expenditure, which

includes expenditure on human or natural capi-

tal in addition to classically defined investments,

in parallel with rising investments (ZEW Study

2024: “Calculation of the future ratio 2018 to 2023:

future orientation of the federal budget recovers

from the COVID-19 low” [in German]).

Necessary public expenditure is largely financed

by tax revenue. At the same time, citizens expect

taxes to be proportionate to public services and

to be used efficiently. It is also important to keep

this balance in mind against the backdrop of an

ageing society and global competition for talent,

companies and technologies. The tax ratio, i.e.

the tax revenues of the state in terms of GDP, is

very stable in the long-term perspective. In the

short term, it fell noticeably in 2023 compared to

the two previous years and stood at 23.1%. The

decline is mainly due to (temporary) government

relief measures (cf. AER 2024) in the wake of high

inflation rates. When the total tax revenues are

differentiated in line with the assessment basis, it

can be seen that roughly half of the revenues are

due to the taxation of incomes and profits of indi-

viduals and companies. Another large proportion

is attributable to indirect taxes on goods and ser-

vices. Around 5% is generated from property-re-

lated taxes.

158. An overall financial policy geared towards

sustainability is vital to ensure a proactive state.

Besides financing the requisite future investments,

this includes sufficient leeway to be able to react

decisively in the event of economic downturns

and crises. The government’s fiscal balance is a

benchmark for fiscal policy. This has been clearly

negative in recent years as a result of the COVID-

118 I. THE FEDERAL GOVERNMENT’S ECONOMIC AND FISCAL POLICY

19 pandemic and the necessary stabilisation of the

energy markets following the start of the Russian

war of aggression against Ukraine. The increasing

expiry of government aid measures is reflected

in a partial reduction in the deficit. The govern-

ment debt-to-GDP ratio, which initially rose due

to the pandemic and then fell again, developed in

parallel with the fiscal balance until 2023. A slight

increase in the debt ratio is expected for 2024.

159. As well as government debt, the impact of the

pandemic is also evident in private debt, where

the momentum of lending in relation to eco-

nomic output has continued to weaken recently.

The negative credit/GDP gap of -1.1 % in Q2 2024

indicates that GDP is growing faster than private

lending for the first time since 2020, but is still

close to the long-term trend in a historical com-

parison. Even if the financial cyclical risks meas-

ured by this indicator are slowly receding, there

are still vulnerabilities in the German financial

system on account of the long build-up of risk in

previous years and measured by other indicators.

119

II. The Federal

Government’s

2025 annual

projection

120 II. THE FEDERAL GOVERNMENT’S 2025 ANNUAL PROJECTION

Overview: moderate recovery after a prolonged

period of stagnation

160. The German economy is only emerging

slowly from the prolonged phase of economic

stagnation. The reason for the persistently weak

growth was the unprecedented accumulation of

external shocks in the history of Germany, which

coincided with structural problems in the Ger-

man economy that had been emerging for some

time already. The direct effects of the COVID-19

pandemic, the Russian attack on Ukraine in vio-

lation of international law, and the associated

suspension of gas supplies from Russia, which

led to temporary steep increases in energy prices,

were cushioned thanks to extensive stabilisation

and support measures for companies and private

households, thereby mitigating losses in profits

and purchasing power. However, the noticeable

rise in the overall economic price level, especially

energy prices, the highly restrictive monetary pol-

icy in the meantime due to high inflation, and the

uncertainty caused by geopolitical developments

continue to have an impact. German industry in

particular is facing major structural challenges

and weak export growth, which is also dampening

commercial investment. Moreover, the state sup-

port measures granted to private households and

companies to overcome the crises triggered by the

COVID-19 pandemic and the steep rise in energy

prices have expired, meaning that fiscal policy has

been moderately restrictive since 2023.

161. The German economy continues to find itself

in a difficult starting position at the turn of 2024-

25. Industry, which is heavily involved in the

international division of labour, is struggling with

a less favourable competitive situation and rising

production costs, which is also impairing export

and investment development. At the same time,

the weak growth has structural causes that go

beyond economic development (cf. also Part I).

For example, the German economy is adversely

affected by an ageing population, which is exacer-

bating shortages of skilled labour, weak invest-

ment (partly due to underdeveloped corporate

growth and innovation financing), and increasing

geopolitical fragmentation. This is slowing down

productivity and the innovative strength of com-

panies and, ultimately, the competitiveness of the

economy as a whole. As a result of the premature

end of the governing coalition, the measures taken

as part of the Federal Government’s Growth Initi-

ative, which aimed to improve the structural

framework conditions for the German economy,

were only partially implemented. The structural

problems described above are, therefore, likely to

continue to hamper economic development. For

the year as a whole, price-adjusted gross domestic

product (GDP) is, therefore, only expected to rise

by a modest 0.3%, following a decline of 0.2% in

the previous year. This means that GDP in 2025

would only be around 0.5% above the level of the

pre-pandemic year of 2019.

162. The global economic environment has

recently developed somewhat more favourably,

but it is characterised by significant regional dif-

ferences and considerable risks and uncertainties.

The US economy is likely to continue to expand

robustly and at a similar pace to last year, while

the eurozone will only enjoy moderate recovery.

Developments in China remain adversely affected

by the ongoing property crisis. One major risk

factor for the projection is the tariff increases and

protectionist measures announced by the new

US administration (cf. Box 9). This risk has been

taken into account in the projection in the form

of cautious approaches to the development of

foreign trade, however, substantial distortions in

global economic and trade development are not

assumed. However, depending on their specific

form, the measures may have a greater negative

impact on global trade and German exports than

assumed. What is also evident is that German

industry is increasingly losing competitiveness

II. THE FEDERAL GOVERNMENT’S 2025 ANNUAL PROJECTION 121

and, consequently, market share on interna-

tional markets. China in particular is becoming

increasingly competitive in traditionally key

export segments for Germany, such as vehicle and

mechanical engineering, partly due to govern-

ment subsidies, and has now built up considerable

overcapacity in this area. Being geared towards

exports, German industry is thus unlikely to ben-

efit from increasing global demand this year to

the same extent as before, which will dampen the

overall economic recovery. In view of possible US

tariff increases, certain pull-forward effects are to

be expected at the start of the year, particularly

in US trade, some of which were already appar-

ent at the end of 2024. All in all, the development

of exports should stabilise over the remainder

of the year, provided that global economic and

trade development is not significantly negatively

impacted by trade policy and protectionist meas-

ures.

163. The weak domestic economic development

of the last year is likely to continue at the turn of

the year, also in view of the ongoing geopolitical

uncertainties and the upcoming general election.

As the economic environment becomes clearer,

domestic economic momentum is expected to

pick up somewhat as the year progresses. Initially,

impetus is likely to come primarily from private

consumer spending and, later on in the year, from

investments. With exports still declining on aver-

age for the year and imports rising at the same

time, foreign trade is expected to make a noticea-

bly negative contribution to growth.

164. The significant increase in collectively agreed

wages and declining inflation rates have led to

noticeable real wage increases in the meantime

and have supported income growth. However,

the average consumer price level in 2024 was

around 20% higher than in 2019, while collectively

agreed monthly earnings (including special pay-

ments) only increased by just under 16%. At the

same time, ongoing uncertainties regarding the

economic situation, also in light of the geopolit-

ical conflicts, have led to increasing income and

job insecurity, which, in conjunction with higher

real interest rates, has resulted in a reluctance to

consume and an increase in the household sav-

ing rate. This restraint in consumption is likely

to continue to prevail at the beginning of 2025,

before declining uncertainty and more favourable

employment prospects boost consumer confi-

dence again. The continued wage increases above

inflation also point to a revival in private con-

sumption during the course of 2025, although the

discontinuation of inflation compensation pre-

miums and the still subdued overall demand for

labour are likely to lead to lower effective wage

increases than in previous years. On the one hand,

the scope for wage increases in some areas is likely

to be reduced by job cuts that have already been

announced or are planned, while, on the other

hand, shortages of skilled labour in other areas

could boost the bargaining power of employees.

165. The investment trend is likely to continue

initially to be characterised by low capacity utili-

sation, a weak order backlog and increased uncer-

tainties regarding the external and domestic eco-

nomic environment, which are only expected to

recede somewhat as the year progresses. Private

investment in machinery and equipment is likely

to pick up again over the course of 2025 as domes-

tic and external demand picks up, capacity utili-

sation increases and financing conditions become

more favourable. A turnaround in construction

investment is also expected over the course of the

year as a result of falling material and financing

costs amid continued high demand for housing –

particularly in urban areas – and energy-efficient

renovations. Government spending on defence

and infrastructure is expected to have a positive

impact on investment activity.

122 II. THE FEDERAL GOVERNMENT’S 2025 ANNUAL PROJECTION

166. The labour market increasingly reflected the

economic weakness experienced over the course

of 2024. An increasing reduction in employment

in the manufacturing sectors was offset by an

increase in employment in some service sectors,

above all in healthcare and social services as well

as education and training. These opposing devel-

opments are likely to continue at the start of 2025.

The moderate economic recovery that is expected

will only make itself felt on the labour market

after a delay, so that the trend will stabilise in

individual sectors that are sensitive to economic

cycles, such as temporary work and construction.

Despite stabilisation over the course of the year,

a fall in the number of people in employment of

20,000 and a rise in the number of unemployed of

120,000 is, therefore, expected on average for the

year, partly due to statistical excesses and short-

falls. Regardless of the shortage of skilled labour

in numerous areas, a growing skills mismatch

between supply and demand means that employ-

ment prospects for the unemployed remain diffi-

cult.

167. The trend of falling consumer prices contin-

ued over the course of 2024. Inflation fell from an

annual average of 5.9% in 2023 to 2.2% in 2024,

with lower energy prices in particular dampening

the year-on-year price increase. However, after

a rate of 1.6% in September, inflation picked up

100

102

104

106

108

110

Index (2020 = 100)

Percent

Blue line: Quarterly development in pre-year prices, adjusted for seasonal and calendar-day effects

Orange lines: Annual averages, in pre-year prices; changes from preceding year in percent

Blue columns: Changes in percent, adjusted for seasonal and calendar-day effects

Changes compared to the previous quarter

Change compared to previous year

2021 2022 2023 2024 2025

-1.1

2.5

0.0

0.6

0.2 0.0

0.6

-0.5

0.1

-0.2

0.2

-0.4

0.2

-0.3

0.1

-0.1

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

0.3

3.7

1.4 -0.3 -0.2

Figure 17: Gross domestic product (price-adjusted)

Sources: Federal Statistical Ofﬁce; annual projection

II. THE FEDERAL GOVERNMENT’S 2025 ANNUAL PROJECTION 123

again at the end of the year to 2.6% in Decem-

ber. This was due to the fading base effects of

energy prices combined with a disproportion-

ately high price hike in the services sector. Con-

sumer prices are also expected to rise by 2.2% this

year. A slightly above-average increase in service

prices, which were largely fuelled by the previ-

ously higher wage settlements, will be offset by

stable energy costs on an annual average as well

as easing price developments at upstream price

levels, which should also be reflected in consumer

prices after a delay. Temporary inflationary effects

arose at the start of the year due to administrative

price increases such as the increase in the CO2 tax,

higher postage fees, the increase in the price of the

monthly transport ticket, the “Deutschlandticket”,

and higher contribution rates for private health

and long-term care insurance.

168. The Federal Government’s annual projection

for 2025 is below the November 2024 forecast issued

by the German Council of Economic Experts (GCEE).

For 2025, the GCEE had forecast a rise in real GDP

of 0.4%. In the face of a very similar overall cycli-

cal picture, it still assumed that the development

in domestic demand, including public-sector con-

sumption and investment in machinery and equip-

ment, would be rather more favourable. Apart from

the slightly higher expected growth impulse from

the change in inventories, which results from the

statistical carry-over of the previous year, the larg-

est deviations are, therefore, reflected in the signif-

icantly more negative trade balance (exports less

imports) in the Federal Government’s annual projec-

tion.

1 Until 2024, preliminary calculations by the Federal Statistical Office, as of January 2025.

2 In relation to labour force; definition by the Federal Employment Agency.

3 Changes in inventories/net exports in % of GDP of the preceding year (= contribution to GDP growth).

Overview 3: Key figures of the annual projection 20251

Sources: Federal Statistical Ofﬁce; the Federal Government’s 2025 Annual Projection.

2023 2024

Annual

Projection

2025

Change as compared to preceding year in %, unless indicated otherwise

FORMATION of gross domestic product (GDP)

(price adjusted) -0.3 -0.2 0.3

Employment (domestic) 0.7 0.2 0.0

Unemployment rate in % (as classified by the Federal Employment Agency) 25.7 6.0 6.3

USE of GDP in price-adjusted terms (real)

Final consumption expenditure (households and NPISHs) -0.4 0.3 0.5

Government -0.1 2.6 1.5

Machinery and equipment -0.8 -5.5 1.1

Construction -3.4 -3.5 -0.6

Domestic demand -0.4 0.2 1.2

Exports -0.3 -0.8 -0.3

Imports -0.6 0.2 1.9

Net exports (contribution to GDP growth) 30.1 -0.4 -0.9

Inflation rate 5.9 2.2 2.2

Gross wages and salaries per employee 6.4 5.3 2.9

124 II. THE FEDERAL GOVERNMENT’S 2025 ANNUAL PROJECTION

169. The 2025 annual projection is based on the fol-

lowing assumptions:

— The average price of Brent crude oil will fall to

around USD75 in 2025, while gas prices will be

slightly higher than last year’s average at around

€48 per MWh. These assumptions are based on

the quotations for futures from the beginning of

January 2025

— The euro-dollar exchange rate is assumed to

remain constant in the projection period at its

average of the last six weeks before the forecast

was prepared. This results in a slight devaluation,

i.e. a slightly lower euro exchange rate of around

USD 1.05 compared to the previous year.

— According to consensus expectations on the

financial markets, the European Central Bank’s

main refinancing rate is likely to average 2.3% in

2025.

170. Given the global and domestic political situ-

ation, the annual projection is subject to signifi-

cantly greater uncertainty. For one thing, increas-

ing protectionist tendencies or an escalation of

trade conflicts could have a negative impact on

the global economy and global trade. The German

economy, which is heavily integrated into global

supply chains, would be particularly affected by

this. Moreover, geopolitical conflicts could lead

to renewed price increases for raw materials,

primary products and transport costs as well as

friction in international trade. Last but not least,

in recent years, public debt has increased signifi-

cantly in some countries, making them more sus-

ceptible to sudden capital outflows. In terms of

domestic policy, there is still no clarity regarding

the future direction of the new Federal Govern-

ment’s economic and financial policy. In contrast

to the usual analysis the annual economic report,

no statements can be made on this at the present

time. A prolonged period of provisional budget

management might mean that additional federal

expenditure is only incurred later in the year than

previously assumed. This could also lead to pri-

vate consumption and investment decisions being

postponed to some extent.

171. Even if the risks currently predominate, a

more favourable development than the one pre-

sented here is also possible. This would be the

2023 2024 2025

In per cent or percentage points1

GDP rate as annual average -0.3 -0.2 0.3

Statistical carry-over at the end of the year 2 -0.2 -0.1 0.3

Rate over the course of the year 3 -0.2 -0.1 0.8

Average annual GDP rate adjusted for work days -0.1 -0.2 0.4

Effect of the number of calendar days4-0.2 0.0 -0.1

Overview 4: Technical details of the 2025 annual projection

1 Up to December 2025 results of the Federal Statistical Office.

2 Index adjusted for season and calendar days in Q4 of the preceding year as compared to the quarterly average

(adjusted for calendar days) of the preceding year.

3 Rate of annual change in Q4, adjusted for season and calendar days.

4 In Percent of GDP

Total sums may be affected by rounding differences.

Source: Up to 2024 Federal Statistical Ofﬁce; Annual projection 2025 the Federal Government.

II. THE FEDERAL GOVERNMENT’S 2025 ANNUAL PROJECTION 125

Total sums may be affected by rounding differences.

Overview 5: Contributions to GDP growth

2023 2024 2025

Year-on-year contributions to growth (in percent)

Gross domestic product (growth) -0.3 -0.2 0.3

Household final consumption expenditure -0.2 0.2 0.3

Government final consumption expenditure 0.0 0.6 0.3

Gross capital formation -0.2 -0.5 0.5

Changes in inventories 0.1 0.1 0.4

Gross fixed capital investment -0.3 -0.6 0.1

Machinery and equipment -0.1 -0.4 0.1

Construction -0.4 -0.4 -0.1

Other capital investment 0.2 0.1 0.1

Domestic demand -0.4 0.2 1.1

Export of goods and services -0.1 -0.3 -0.1

Goods -0.3 -0.3 -0.3

Services 0.2 0.0 0.1

Imports of goods and services 0.3 -0.1 -0.7

Goods 1.2 0.2 -0.6

Services -0.9 -0.3 -0.1

External contribution 0.1 -0.4 -0.9

Source: Until 2024 Federal Statistical Ofﬁce, 2025 annual projection of the Federal Government.

case in particular if the international crises were

to de-escalate and/or the threatened protec-

tionist measures by the US government were

not implemented, or only to a lesser extent than

announced. Furthermore, a rapid and growth-ori-

entated economic and financial policy reform

agenda from the new Federal Government could

lead to positive confidence effects among private

households and companies and so boost con-

sumption and investment momentum. Lastly, a

further decline in energy and material costs could

lead to a more significant fall in the inflation rate,

which, in turn, could expand the scope for mone-

tary policy and additionally support the economic

recovery by lowering interest rates.

Global economy stable despite increased

uncertainties

172. Despite geopolitical tensions, increasing pro-

tectionism and a still predominantly restrictive

monetary policy, the global economy continued

to show robust growth, albeit moderate by his-

torical standards. While demand for industrial

goods remained weak, especially in the advanced

economies, the service sector supported economic

development. Global trade embarked on a path of

moderate recovery and grew at a similar pace to the

global economy last year.

173. Despite the increased uncertainties, interna-

tional organisations are anticipating stable, albeit

126 II. THE FEDERAL GOVERNMENT’S 2025 ANNUAL PROJECTION

still subdued, global economic development in

2025. In many countries, the economy should

gradually receive some tailwind from monetary

easing through more favourable financing costs.

Moreover, real wages have returned to pre-energy

price shock levels in many places as a result of

falling inflation and higher wage settlements, and

are thus likely to contribute to growth by revitalis-

ing private consumption.

174. All in all, growth momentum across the

world’s regions is likely to vary again this year.

The US economy will remain a key global growth

driver. The labour market will remain robust and

investment activity is likely to pick up. Moreo-

ver, monetary policy is likely to be less restric-

tive, making financing conditions more favour-

able. Nevertheless, the more restrictive trade and

migration policies announced by the new US

administration might lead to higher consumer

prices and an appreciation of the US dollar, which

would have a dampening effect. Simultaneously,

a further expansionary financial policy is to be

expected.

175. The economic recovery in the eurozone is

likely to gain some momentum this year, driven

primarily by the domestic economy. As well as the

impetus from consumption and investment by

private households and companies, growth is also

being supported by public investment, includ-

ing as part of the NextGenerationEU programme.

However, the ongoing weakness in industry,

which is also due to structural factors, and the

increased economic policy uncertainty, both with

regard to the measures announced by the new US

government and the political situation within the

eurozone, are dampening any prospects of growth

in the current year.

176. In the emerging markets, economic momen-

tum is likely to remain the same overall as last

year. However, for both cyclical and structural

reasons, the Chinese economy is expected to slow

down. Despite the Chinese government’s planned

monetary and fiscal policy support measures, the

negative factors are likely to be outweighed by

the ongoing tensions on the property market, the

high savings rate and the resulting weak private

consumption as well as the less favourable export

prospects on the US market.

177. All in all, the global economy is expected to

expand at an almost unchanged rate of just over

3% in 2025. Growth weighted with German export

shares is also likely to remain stable with an

increase of 2.1% this year, after 1.8% in 2024, albeit

weaker than global GDP. However, the down-

side risks to the global economic outlook have

increased significantly in view of US trade policy

and heightened geopolitical tensions.

Foreign trade only gradually and cautiously

regaining its footing

178. The German export industry continues to be

burdened by subdued demand for its industrial

goods, ongoing geopolitical tensions, increasing

protectionism and the declining global competi-

tiveness of German companies. Despite the robust

global economic development and the brief

recovery at the beginning of 2024, price-adjusted

exports once again fell significantly by an aver-

age of -0.8 % in 2024 compared to the previous

year. On account of the continuing weakness in

domestic demand, imports were also weak at +0.2

%, albeit more stable than exports. As a result, net

exports reduced gross domestic product growth

by 0.4 percentage points.

179. Current leading indicators suggest that Ger-

man foreign trade is only slowly emerging from

its weak phase: although incoming orders from

abroad have stabilised in the meantime, according

II. THE FEDERAL GOVERNMENT’S 2025 ANNUAL PROJECTION 127

to company surveys, the assessment of the vol-

ume of orders on hand has continued its down-

ward trend that has been ongoing since 2021 until

recently. The ifo Institute’s export expectations,

which have been in the negative range since

spring 2024, also deteriorated further in Decem-

ber. Exporters in the key metal and automotive

sectors in particular are anticipating a decline in

foreign business.

180. However, foreign demand is expected to pick

up again as the year progresses. While the volume

of global trade in goods and services already in -

creased last year and is expected to rise by an

annual average of 3.2% in 2025, the Federal Gov-

ernment is also expecting a noticeable recovery in

growth in German sales markets with an increase

of 3.1%, compared to just 1.6% last year. Demand

from other EU countries in particular is likely to

increase somewhat more strongly again (cf. Fig-

ure

18). However, economic policy uncertainty

with regard to possible US tariff increases is hav-

ing a negative impact on export prospects. At first,

the expected tariff increases might trigger pull-

for ward effects that temporarily increase exports.

Later on, however, a more restrictive US trade pol-

icy would lead to a drop in exports. The projection

takes this risk into account by adopting a cautious

approach to export development; however, no

substantial distortions in global economic and

trade development are assumed. An escalation in

the trade conflict with possible reciprocal coun-

termeasures and global losses in prosperity repre-

sents a downside risk that would also have a major

impact on the German export industry (cf. Box 9).

Overall, exports are expected to fall again this year

by 0.3 %. This means that export growth will lag

well behind the development of sales markets this

EU Other industrialised countries Emerging/developing countries Export-weighted world imports

Changes compared to previous year in percent; percentage points

-15

-10

-5

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

Figure 18: Growth in the German sales markets

Source: IWF World Economic Outlook, own calculations.

128 II. THE FEDERAL GOVERNMENT’S 2025 ANNUAL PROJECTION

Box 9: Possible effects of a more restrictive US trade policy on the German economy

During his election campaign, US President-elect Trump announced that he would raise tariffs on imports

from China to 60% and introduce general import duties of 10% to 20% on imports from all other countries. He

has also threatened import tariffs of 25% on deliveries from neighbouring countries Canada and Mexico. Cur-

rently, the average US import tariff is significantly lower at 1.5%, with much higher tariffs on individual prod-

ucts in some cases.

In view of Germany’s export-orientation and close trade and production links with the USA, tangible direct

and indirect negative effects on the German foreign and overall economy would be expected in the event of

US tariff increases. As the uncertainty surrounding the actual implementation and design of the tariff increases

that are being discussed remains high, the scenarios and simulation results from various recent studies in the

literature sometimes differ considerably.6 The simulation results also depend on the respective assumptions

and models used.

All countries affected would experience adverse impacts on GDP. In principle, such tariff increases in the

country of origin are accompanied by rising inflation, a reduction or redirection of trade flows and possibly

increased economic uncertainty. According to the simulation results, US GDP would be 0.1% to 5% below

the level without tariff changes in the medium term with the threatened tariff increases, depending on the

scenario, with most studies suggesting effects of up to 1%, with some larger GDP losses relative to the base

scenario in the short term. For China, the various models and scenarios mainly result in losses of around 1%

of GDP in the medium term. According to the simulation results, in the first and second year of the tariff

increases, Chinese GDP would even be up to 4% below the scenario without further tariffs. Depending on the

extent of the tariff increases and any possible countermeasures, real global GDP could be between 0.5% and

2.3% below the level in the baseline scenario without any tariff increases in the medium term. In the medium

term, German economic output would be up to 1.4% below the level without any tariff increases, primar-

ily as a result of lower net exports and weaker investment activity: depending on the model framework and

the assumed scenario with or without countermeasures by other countries, the estimated results for German

exports indicate declines of between 0.1% and 4.5% in the medium term compared to the baseline scenario.

Exports to the USA in particular would fall sharply by more than 10%. At the same time, US tariffs on Chinese

products would noticeably dampen exports of German intermediate products to China. In contrast, German

exports to other countries could increase due to rerouting effects. The extent of these effects also depends on

the progress made in international and bilateral trade agreements. In parallel, the appreciation of the US dol-

lar and depreciation of the euro associated with the tariff increases could make it easier to export to the USA

and so compensate for some of the negative direct impacts of tariffs on German exports.

6 Cf. for example Baur, Flach, Hillrichs (2024): German-US Trade Relations before the Election: Implications of a Trump Comeback, EconPol

Forum 25 (5), 27-31, CESifo, Munich; Obst, Matthes, Sultan (2024): What if Trump is re-elected?, IW-Report, No. 14, Berlin/Cologne; Dullien,

Stephan, Theobald (2024): US-Wahlen: Trumps Zollpläne würden deutsche Wirtschaft empfindlich treffen, IMK Commentary No. 12, October

2024; McKibbin, Hogan, Noland (2024): The International Economic Implications of a Second Trump Presidency, PIIE Working Paper No. 24-20,

September; Deutsche Bundesbank (2024): Zu möglichen Auswirkungen angekündigter Maßnahmen der designierten US-Regierung auf die

deutsche Wirtschaft, Monthly Report December.

II. THE FEDERAL GOVERNMENT’S 2025 ANNUAL PROJECTION 129

year, too. The German export industry is, once

again, likely to lose global market share.

181. Against the backdrop of subdued export growth

and a gradual recovery in domestic demand,

im ports are likewise expected to see moderate

growth. However, with a growth rate of 1.9 %, the

momentum of real imports is likely to be positive

in the current year, meaning that a negative

growth contribution from foreign trade (exports

minus imports) of 0.9 percentage points is, once

again, to be expected in purely arithmetical terms,

given the decline in exports.

182. The terms of trade, i.e. export prices relative

to import prices, continued to improve last year

with an increase of 1.3 %. While prices for energy

and raw materials in particular continued to fall

on the import side, exporters were able to realise

slightly higher prices than in the previous year.

In mathematical terms, this means that a higher

volume of imports could be afforded for the pro-

ceeds of the goods and services exported from

Germany. Based on the assumptions for the trend

in exchange rates and commodity prices, the

Federal Government is expecting a slight deteri-

oration in the terms of trade for the current year,

which should now stabilise close to the level prior

to the energy price shock. The current account

balance is likely to increase from 5.5% last year

to 6.2% in the current year with a rising primary

income balance and a sideways movement in the

balance of trade in goods and services in relation

to GDP.

Uncertainty and weak demand are dampening

investments

183. Weak domestic and foreign demand, a sig-

nificant drop in capacity utilisation as well as

continued high financing costs were the key fac-

tors behind the reluctance to invest last year. As

a result, gross fixed capital formation fell by 2.8%

on average in 2024, when adjusted for prices. Since

the outbreak of the Russian attack on Ukraine in

February 2022, key indicators for the capital goods

economy, i.e. machinery, equipment and vehi-

cles, have been below the level at the start of 2022

(cf. Figure 19). This is very evident in incoming

orders, which have been following a weak upward

trend since summer 2024, but are still 19% below

the level at the start of 2022. When compared to

orders, domestic sales and capacity utilisation

were fairly stable, thanks to the large backlog of

orders that had built up during the COVID-19

pandemic. However, this backlog has declined sig-

nificantly since then due to a drop in new orders.

Against this backdrop, domestic sales and capac-

ity utilisation fell perceptibly over the course of

last year. Business expectations for the next six

months, which have been negative since March

2022 and have, at any rate, been dominated by

decreasing pessimism since the autumn of 2023,

deteriorated significantly again in the spring of

2024. At the current margin, domestic sales and

capacity utilisation have recovered somewhat,

but remain well below the long-term average. The

indicators thus point to a further subdued trend

in investment in machinery and equipment at the

start of 2025.

184. Investment in machinery and equipment is

expected to pick up as 2025 progresses, especially

if there is clarity about the economic and finan-

cial policy framework after the new government

is formed. Furthermore, the important area of

mechanical and plant engineering is closely linked

to the development of foreign trade. The majority

of investments are made by the capital-intensive

and export-orientated industries. With a contin-

ued upturn in global growth momentum – par-

ticularly in the sales markets in Europe that are so

important for Germany – and a resulting increase

in foreign demand, capacity utilisation in indus-

130 II. THE FEDERAL GOVERNMENT’S 2025 ANNUAL PROJECTION

try is likely to rise again leading to a recovery in

investment in machinery and equipment. This

development will be accompanied by a signifi-

cant increase in state investment in machinery

and equipment, including in connection with

purchases as part of the Bundeswehr special

fund. These factors should lead to a turnaround

in machinery and equipment, including in con-

nection with purchases as part of the Bunde-

swehr special fund. These factors should lead to

a turnaround in equipment investment over the

course of 2025; the Federal Government expects

price-adjusted growth of 1.1 % for the year as a

whole.

185. As well as the increased uncertainty, con-

struction activity has been dampened for some

time by a sharp rise in construction costs and less

favourable financing conditions. Building con-

struction, i.e. residential and commercially used

buildings, has been hit harder than civil engineer-

ing, which is benefiting from publicly financed

infrastructure measures such as road and rail con-

struction. Overall, construction investment has

fallen by around 13% since 2021. The number of

building permits issued in the period from Jan-

uary to November 2024 fell by almost 19% com-

pared to the same period last year. Construction

of residential buildings in particular, which con-

tinues to suffer from high material and financing

costs, is a key driver of this trend, while invest-

ment in construction of non-residential buildings,

especially of commercially used buildings, has

actually increased a little recently. By contrast, the

previously strong momentum in civil engineering

has weakened since summer. The ongoing high

demand for housing with low vacancy rates, par-

ticularly in urban centres, further increases in real

Development of ifo business index for producers of capital goods (next 6 months) (right scale)

Domestic turnover of capital goods (rebased Jan. 2022=100) (left scale)

New orders registered by producers of capital goods (new baseline: Jan. 2022=100) (left scale)

Capacity utilisation reported by producers of capital goods (rebased Jan. 2022=100) (left scale)

Index (Jan. 2022 = 100) Balance points

2022 2023 2024

Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov

-120

-100

-80

-60

-40

-20

100

105

Figure 19: Indicators for investment in machinery and equipment

Source: Federal Statistical Ofﬁce, ifo Institute.

II. THE FEDERAL GOVERNMENT’S 2025 ANNUAL PROJECTION 131

wages, and the expected continued easing of mon-

etary policy are all stimulating the market. Mort-

gage interest rates, for example, fell by 40 basis

points last year and the number of property trans-

actions and the volume of new loans increased.

The ECB’s Bank Lending Survey also points to

increased demand for loans for corporate invest-

ments, with the balance of loans in a positive

range again since the summer of 2024 (cf. Figure

20). In addition, the Federal Government is sup-

porting investment spending by both citizens and

companies, such as through the measures of the

Growth Opportunities Act or through investment

grants as part of the Climate and Transformation

Fund. Another driving force is public construction

investment in residential and commercial build-

ings and relief measures such as federal subsidies

for efficient buildings. In view of the continu-

ing stagnation in building permits and incoming

orders, reduced capacity utilisation and histori-

cally still high cancellation rates, the Federal Gov-

ernment is also forecasting an annual average

decline in construction investment of 0.6% for

the current year, although this is likely to be more

moderate than in the previous year.

186. According to the Federal Government’s

annual projection, price-adjusted gross fixed cap-

ital formation will increase by 0.4% overall. The

investment ratio – i.e. nominal gross fixed capital

formation in relation to nominal gross domestic

product – is expected to remain stable at 20.9%

this year after 20.8% in 2024.

Labour market plagued by economic

stagnation

187. The economic downturn has left its mark on

the labour market. Although employment reached

a new high of 46.1 million people on average in

2024, growth has come to a standstill since the

middle of the year. Although there are still short-

Credit demand for corporate investments acc. to Bank Lending Survey, left-hand scale Commercial ﬁxed asset investments, right-hand scale

Balance (percentage points) in percent compared to previous year

-20

-15

-10

-5

-80

-60

-40

-20

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Figure 20: Credit demand for corporate investments

Source: Federal Statistical Ofﬁce, German Chambers of Crafts and Skilled Trades (EZB).

132 II. THE FEDERAL GOVERNMENT’S 2025 ANNUAL PROJECTION

ages of skilled workers in many areas, the job sur-

vey conducted by the Institute for Employment

Research (IAB), among others, points to a weaker

demand for labour in general. Moreover, the lead-

ing indicators from the ifo Institute and the IAB

are signalling a continuation of the rise in unem-

ployment and a decline in companies’ willingness

to hire new staff. In the annual projection, a slight

decline in the number of people in employment

of 20,000 is, therefore, expected for the annual

average in 2025, despite stabilisation over the

course of the year.

188. Although the average number of employ-

ees subject to social insurance contributions is

expected to rise by 155,0000 in 2024, employment

momentum has slowed down during the course

of the year. Besides the cyclical downturn, this is

also due to demographic trends. In the current

year, it can also be assumed that there will be a

rise in people in employment and subject to social

security contributions, particularly in the services

sector. As in previous years, the continuing short-

age of skilled labour in some service sectors is

likely to be mitigated to a great extent by people

with foreign citizenship, which is supported by

the measures taken by the Federal Government as

part of the further development of skilled labour

immigration to make immigration and employ-

ment of third-country nationals easier. Given the

announced cuts in jobs requiring compulsory

social-insurance payments in the manufacturing

sector, little movement is expected overall in the

current year. The number of marginally employed

persons fell slightly over the course of 2024 and

is only likely to increase again towards the end

of the year as part of a broader economic recov-

ery. The number of self-employed persons has

recently declined and, in view of demographic

change, is also likely to stabilise, at best in the cur-

rent year.

189. Due in particular to the cyclical and structural

problems, the rise in unemployment that began in

2023 has continued. The chances of moving from

unemployment to obtaining a job that is subject

social security contributions are at a low level in

a longer-term context and, given the continued

subdued demand for labour, are only likely to

gradually improve again in the course of the eco-

nomic recovery in the second half of 2025. As a

result of the statistical overhang, unemployment

is thus expected to rise by an average of 120,000

people in 2025. The weak economic develop-

ment, especially in industry and construction, is

also reflected in a significant increase in short-

time work carried out in October 2024 of around

110,000 people compared to the same month in

the year before. A noticeable decline in short-time

work is not expected until the assumed economic

recovery sets in and companies expand their pro-

duction.

Inflation levels off at 2%

190. The inflation rate, i.e. the year-on-year change

in the level of consumer prices, has been on a

downward trend since the start of 2023 and hov-

ered around 2% in the second half of last year

(cf. Figure 21). At the end of the year, it increased

again slightly, primarily due to a base effect in

energy prices. The average inflation rate for 2024

was, therefore, 2.2 % overall. The core rate, which

does not include the more volatile prices of

energy and food, was significantly higher, with an

increase of 3.0%. As well as the dampening effect

of energy prices on the overall inflation rate, this

was due to continued above-average price pres-

sure in the area of labour-intensive services.

191. The Federal Government expects that infla-

tion will remain moderate overall in the projec-

tion period and fluctuate around the ECB’s 2%

target for the eurozone as a whole. Although the

II. THE FEDERAL GOVERNMENT’S 2025 ANNUAL PROJECTION 133

inflation-dampening effects of energy are tend-

ing to disappear, prices on the futures markets do

not currently indicate that there will be any fur-

ther significant price rises. Prices for natural gas

on the spot markets rose again towards the end of

last year to up to €50 per megawatt hour (MWh).

However, according to market expectations on

the futures markets, gas prices are expected to

fall in the coming quarters. The price of Brent

crude oil had also risen to over €70 per barrel by

the turn of 2024-25, but is expected gradually fall

again over the course of this year, according to

futures prices. At the beginning of 2025, however,

a number of administrative price increases that

increase the inflation rate compared to the previ-

ous year took effect: for example, the CO2 pricing

in the Fuel Emissions Trading Act was raised fur-

ther; this is likely to have an impact on the energy

components of the consumer price index. Other

potentially inflation-increasing effects are likely

to come from the rise in postage for letters and

parcels, higher contributions to private health and

long-term care insurance and the higher price for

the monthly transport ticket, the “Deutschland-

ticket”, from 1 January 2025 onwards.

192. These price-increasing effects are offset by a

number of factors that dampen inflation:

upstream import, producer and wholesale prices

continued to show predominantly negative rates

of change compared to the previous year until the

end of 2024. The ECB’s monetary policy remains

restrictive, even after its interest rate cuts. Wage

settlements, which had risen significantly in the

wake of the massive rise in inflation along with

the associated loss of purchasing power in recent

Growth contribution from otherGrowth contribution from energyGrowth contribution from food Inﬂation rate

-2

Inﬂation rate (Change in consumer prices compared to the same month last year in percent)

Jan Mar May Jul Sep Nov

2020

Jan Mar May Jul Sep Nov

2021

Jan Mar May Jul Sep Nov

2022

Jan Mar May Jul Sep Nov

2023

Jan Mar May Jul Sep Nov

2024

Figure 21: Contributions to growth in consumer prices

Source: Federal Statistical Ofﬁce.

134 II. THE FEDERAL GOVERNMENT’S 2025 ANNUAL PROJECTION

years, were recently much lower again in view of

the falling inflation rate and the weakening of the

labour market. For this reason, the above-average

rise in prices in the sector of labour-intensive ser-

vices is likely to gradually subside in the forecast

period, causing the core rate to fall more sharply

again.

193. Under the circumstances, the Federal Govern-

ment also expects an average inflation rate of 2.2%

in 2025. The core rate (excluding energy and food)

is expected to fall to 2.4%.

Stable incomes bolster private consumption

194. The nominal and real incomes of private

households have recently continued to recover.

As a result of strong minimum wage and collec-

tively agreed wage increases as well as the wide-

spread use of inflation compensation premiums,

nominal effective wages (gross wages and salaries

per employee) rose by 5.3% in the previous year.

Among full-time employees, the fifth with the

lowest earnings continued to record the strongest

nominal wage growth with an increase of around

8.5% compared to the same period in the previous

year. By contrast, the nominal wages of margin-

ally employed persons recently showed below-

average growth following the disproportionately

high increase in 2023. Against the backdrop of

the increase in the statutory minimum wage

from €12.41 to €12.82 on 1 January 2025, how-

ever, they are also likely to rise again somewhat.

Due, in part, to the fall in inflation (cf. Item 190),

real wages again rose sharply in the previous year

(cf. Figure 22).

195. In light of the most recent collective wage

agreements and pending wage rounds, which are

likely to take into account the slowdown on the

labour market, as well as the expiration of the

inflation compensation premium instrument at

-8

-6

-4

-2

202420232022202120202019

Nominal wage index Real wage index

Change compared to previous year's quarter in percent

Inﬂation

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Figure 22: Development of nominal and real wages and inflation

Source: Federal Statistical Ofﬁce.

II. THE FEDERAL GOVERNMENT’S 2025 ANNUAL PROJECTION 135

the end of 2024, wage momentum is expected to

be significantly weaker this year. Given these cir-

cumstances, wage drift, i.e. the deviation of effec-

tive wage development from collectively agreed

wage development, is also likely to be significantly

lower than in previous years. In its annual projec-

tion, the Federal Government assumes an average

increase in effective wages of around 2.9% this

year, compared to 5.3% in 2024. This means that

wage growth is likely to remain above the expected

increase in consumer prices (cf. Item 193) and real

gross earnings will continue to rise over the course

of the year. At 1.9%, net wages and salaries per

employee are expected to develop somewhat

more slowly this year. While the adjustment of the

income tax rate to compensate for “bracket creep”

and the rise in the basic allowance and child

allowance will reduce the tax burden, the rise in

net wages will be slowed down by rising health

insurance contributions.

196. The nominal disposable income of house-

holds, which besides employee compensation and

state social benefits also includes self-employ-

ment and property income, is expected to rise

by 2.3% this year. The weaker growth compared

to previous years is due not only to the slower

growth in net wages, but also to the recent weak

rise in income from business, self-employment

and property. Given the increased uncertainty on

the labour market and the ongoing geopolitical

uncertainties, only a slight decline in the savings

rate is expected in the current year, despite inter-

est rate cuts being expected. The private invest-

ments required to achieve the climate targets

might also be accompanied by a slightly higher

rate of private saving. The extent to which the

recent crises have led to structural changes in the

savings behaviour of private households can only

be assessed in retrospect. All in all, a further mod-

erate increase of 0.5% is assumed for price-ad-

justed private consumption this year.

Public consumption expenditure supports

domestic economy

197. In the past year, public consumption expend-

iture provided significant support for the econ-

omy. This was due firstly to the dynamic develop-

ment of advance payments made by the state and,

secondly, to a noticeable increase in social benefits

in kind in the healthcare and nursing care sector;

the latter also increasingly reflects demographi-

cally induced additional expenditure. As well as

that, there was a sustained rise in employment in

the areas of education, healthcare and adminis-

tration in conjunction with a noticeable increase

in compensation per employee. The payment

of one-off and tax-free inflation compensation

bonuses played a key role in this. For the current

year, the Federal Government expects that public

consumption expenditure will continue to make a

positive contribution to GDP growth, despite the

provisional budget. Monetary social benefits are

once again likely to rise disproportionately in view

of cyclical unemployment insurance payments as

a result of higher unemployment and increasing

short-time work, while the slightly lower pension

increase compared to 2024 is likely to dampen

this. For 2025 as a whole, the Federal Government

expects government consumption expenditure to

increase by 1.5% in price-adjusted terms. However,

this expectation is subject to particular forecast-

ing uncertainty in light of the current provisional

budget management and the as yet unclear fiscal

policy framework of the next government.

136 II. THE FEDERAL GOVERNMENT’S 2025 ANNUAL PROJECTION

Box 10: Review of the 2024 Annual Projection

Last year, according to preliminary calculations by the Federal Statistical Office, gross domestic product shrank

by 0.2%. In its annual projection for 2024, the Federal Government had still expected slight growth of 0.2%. In

view of the initially somewhat more favourable than expected performance of economic indicators at the start

of 2024, the Federal Government – as well as other institutions – then slightly raised its growth forecast in its

spring projection to +0.3 %, before revising its expectation downwards to -0.2 % in the autumn.

The reasons for the lack of the expected recovery in 2024 lie in a combination of structural burdens and exter-

nal factors. On the one hand, the weaker than expected global economic demand for German export goods

combined with the reduced competitiveness of German companies dampened export and investment activity;

and on the other, the increased uncertainty, particularly given the ongoing and, in some cases, escalating geo-

political conflicts, adversely affected the consumption and investment intentions of private households and

entrepreneurs.

The annual projection for 2024 was based on the assessment at the time that the loss of purchasing power

suffered by private households in previous years would be gradually overcome by strong wage growth coupled

with continuously falling inflation rates. In conjunction with an overall robust employment situation, a revival

in private consumption was expected on this basis. Furthermore, based on the forecasts of international

organisations, an upturn in the global economy and global trade was assumed in the spring of 2024, which

was supposed to be reflected in an increase in foreign demand for German export goods. Under these circum-

stances, the Federal Government also assumed an increase in exports and a recovery in investment in machin-

ery and equipment, with the latter also being supported by the high level of investment required as part of the

drive towards increasing digitalisation and the transformation to a climate-neutral economy.

Global trade picked up speed in 2024, much as forecast. However, the German export industry benefited less

from this than in previous years. One reason for this is the loss of competitiveness of German exporters on the

global markets, in part due to increasing competition from Chinese manufacturers in the vehicle and mechan-

ical engineering segment, traditionally an important sector for Germany. Furthermore, the energy price level,

which is still relatively high in international comparison, is having a negative impact on the competitiveness of

Germany’s energy-intensive industries. As a result, exports of goods fell significantly.

Although, as expected, there were noticeable wage increases, a slowdown in the rise in consumer prices and

a continued rise in employment, the consumer climate deteriorated once again and the savings rate remained

comparatively high. This is probably due, among other things, to increased uncertainty among private house-

holds.

Weak domestic and foreign demand, increased financing costs along with a lack of planning certainty also

noticeably slowed down investment activity in Germany, which was reflected in the unexpectedly significant

drop in investment in plant, equipment and construction.

The developments on the labour market were generally correctly assessed. It is true that the weak economic

momentum became increasingly noticeable there over the course of the year. Nevertheless, employment

reached a historic high and slightly exceeded the estimate from the 2024 annual projection. However, unem-

ployment rose more sharply than expected a year ago.

→

II. THE FEDERAL GOVERNMENT’S 2025 ANNUAL PROJECTION 137

Deviations from the estimated values of the 2024 annual projection and the actual trend also arise as a result

of the Europe-wide harmonised, comprehensive general overhaul of the national accounts in July 2024. This

resulted in both methodological and substantive changes that, at times, led to significant retrospective adjust-

ments to many time series. In this respect, the data pool has also changed since the 2024 annual projection.

138 II. THE FEDERAL GOVERNMENT’S 2025 ANNUAL PROJECTION

Macroeconomic development of the Federal Republic of GERMANY 1

2024

Annual projection

2025

Percentage change on preceding year, unless otherwise stated

FORMATION of gross domestic product (GDP)

GDP (price-adjusted) -0.2 0.3

Employed persons (in Germany) 0.2 0.0

GDP per employee -0.4 0.3

GDP per hour worked -0.1 0.2

For information:

Unemployment rate in % (ESA concept) 23.2 3.3

Unemployment rate in % (Federal Employment Agency definition) 26.0 6.3

USE of GDP at current prices (nominal)

Final consumption expenditure

Private households and NPISHs 3.0 2.7

Government 5.3 3.7

Gross fixed capital formation -0.3 2.5

Changes in inventories and net additions to valuables (€bn) 10.6 29.6

Domestic demand 2.9 3.4

Net exports (€bn) 172.8 134.0

Net exports (as % of GDP) 4.0 3.0

Current account balance (in % of GDP) 5.5 6.2

Gross Domestic Product (nominal) 2.9 2.3

GDP by expenditure price-adjusted (real)

Final consumption expenditure

Final consumption expenditure of households and NPISHs 0.3 0.5

Government 2.6 1.5

Gross fixed capital formation -2.8 0.4

Machinery and equipment -5.5 1.1

Construction -3.5 -0.6

Other products 3.9 2.4

Change in inventories and net additions to valuables (contribution to GDP growth) 30.1 0.4

Domestic demand 0.2 1.2

Exports -0.8 -0.3

Imports 0.2 1.9

Net exports (contribution to GDP growth) 3b-0.4 -0.9

Gross domestic product (real) -0.2 0.3

Price development (2020 = 100)

Consumer price index 2.2 2.2

Private consumption expenditure 2.7 2.2

Domestic demand 2.7 2.2

Gross domestic product 43.1

2.1

DISTRIBUTION OF GROSS NATIONAL INCOME

(resident concept)

Compensation of employees 5.5 3.1

Income from self-employment and property -9.3 1.5

National income 1.2 2.7

Gross national income 2.7 2.9

For information (resident concept):

Employees 0.4 0.0

Gross wages and salaries 5.7 2.9

Total gross wages and salaries per employee 5.3 2.9

Disposable income of private households 4.5 2.3

Savings rate in % 511.6 11.1

Overview 6: Key figures of the 2025 annual projection

1 Preliminary calculations of the Federal Statistical Office until 2024; as of January 2025.

2 In relation to the total labour force; Federal Employment Agency definition.

3 Absolute change in inventories or net exports as a percentage of the previous year’s GDP (= contribution to growth).

4 Unit labour costs per employee; percentage change on preceding year: 2024: 5.5%; 2025: 2.8%.

5 Saving in per cent of private household’s disposable income including occupational pension claims.

Sources: 2024 Federal Statistical Ofﬁce; 2025 Annual projection of the Federal Government.

II. THE FEDERAL GOVERNMENT’S 2025 ANNUAL PROJECTION 139

Key figures for the macroeconomic development in the Federal Republic of

Germany 1

Annual projection

2024 Actual outcomes

2024

Percentage change on preceding year, unless otherwise stated

Gross domestic product (GDP)

GDP (price-adjusted) 0.2 -0.2

Total employment (in Germany) 0.2 0.2

GDP per employee 0.0 -0.4

GDP per hour worked -0.8 -0.1

for information:

Unemployment rate in % (ESA concept) 22.9 3.2

Unemployment rate in % (Federal Employment Agency definition) 25.8 6.0

GDP by expenditure at current prices (nominal)

Final consumption expenditure

Final consumption expenditure of households and NPISHs 3.9 3.0

Government 5.4 5.3

Private consumption expenditure 2.0 -0.3

Changes in inventories and net additions to valuables (€bn) 53.7

10.6

Domestic demand 3.5 2.9

Net exports (€ billion) 178.2 172.8

Net exports (as % of GDP)

Net exports (as % of GDP) 4.2 4.0

Gross domestic product (nominal) 3.5 2.9

GDP by expenditure price-adjusted (real)

Final consumption expenditure

Private households and NPISHs 1.1 0.3

Government 0.7 2.6

Gross fixed capital formation -0.7 -2.8

Machinery and equipment 0.5 -5.5

Construction -2.2 -3.5

Other products 2.0 3.9

Change in inventories and net additions to valuables (contribution to GDP growth) 3-0.3 0.1

Domestic demand 0.3 0.2

Exports 0.6 -0.8

Imports 0.8 0.2

Net exports (contribution to GDP growth) 3 0.0 -0.4

Gross domestic product (real) 0.2 -0.2

Price development (2020 = 100)

Consumer price index 2.8 2.2

Private consumption expenditure 2.8 2.7

Domestic demand 3.2 2.7

Gross domestic product 43.2 3.1

Distribution of gross national income

(resident concept)

Compensation of employees 5.6 5.5

Income from self-employment and property -4.2 -9.3

National income 2.6 1.2

Gross national income 3.5 2.7

for information (resident concept):

Employees 0.3 0.4

Gross wages and salaries 5.6 5.7

Gross wages and salaries per employee 5.3 5.3

Disposable income of private households 3.8 4.5

Savings rate in % 511.1 11.6

1 Up to 2023 preliminary results of the Federal Statistical Office; as of January 2025.

2 In relation to the total labour force.

3 Absolute change (stocks/external balance) in percent of GDP of previous year (=contribution to change in GDP).

4 Unit labour costs, percentage change on preceding year: annual projection 2024: 5.3%; actual outcome 2024: 5.5%.

5 Saving in percent of private households’ disposable income including occupational pension claims.

Overview 7: Comparison between the 2024 annual projection and actual outcomes

Sources: Federal Statistical Ofﬁce; annual projection of the Federal Government.

bmwk.de

2 views·142 pages

Annual Economic Report 2025 PDF Free Download

Annual Economic Report 2025 PDF free Download. Think more deeply and widely.

Uploaded by Dylan Q. Nguyen on 3/19/2026

/142

100%