## 1. Expenditure Contributions to GDP Growth

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### Executive summary and headline finding
- Germany’s real GDP declined significantly over 2023–24.
- Real GDP contracted by an average of 0.7 percent per year in 2023-24.
- Fragmentary figure in source: 0.2 percent in 2025.

### Drivers of the growth downturn (cyclical vs structural)
- Model estimate for end-2022 to Q2 2025:
  - Around 60 percent of lower growth relative to Germany’s average for 2000–19 is ascribed to structural factors (decline in trend growth).
  - The remaining 40 percent is ascribed to cyclical factors.
- Decomposition of the decline in trend growth:
  - Around 40 percent of the decline in trend growth is ascribed to a decline in trend capital and labor inputs (in part due to population aging).
  - The remaining 60 percent of the decline in trend growth is explained by other factors, mainly declining trend productivity growth.

### Methodology
- Uses a multivariate filter (MVF) approach (based on Benes et al (2010)) to estimate potential output and the output gap.
- Model inputs: GDP, core inflation, unemployment, capacity utilization; augmented with energy prices in both the inflation and potential output equations.
- Controls added for the unusual pandemic effect on potential output using short-term work schemes as a proxy.
- Analysis uses both expenditure and production sides of the national accounts and supplementary data.

### Expenditure-side drivers and quantitative findings
- Broad-based downturn: nearly all major expenditure categories contributed less to growth between end-2022 and Q2 2025 than in previous years; investment and exports were the largest negative contributors.
- Private consumption:
  - Real disposable income increased by 1.5 percent in 2024.
  - Private consumption growth remained subdued at 0.5 percent in 2024.
  - Higher-than-usual household savings rates during 2023–24: analysis attributes about one-third of the increase in the savings rate between early-2022 and late-2024 to higher interest rates, around a fifth to slowly rising real incomes, another fifth to transfer payments to cushion high energy prices, and about one-third to unexplained factors (precautionary savings and past declines in real wealth).
- Investment:
  - Real investment turned negative as a contributor to growth following the energy-price shock and monetary tightening.
  - In the five years prior to the pandemic, real investment contributed 0.6 percentage points to growth on average.
  - The decline in real investment between 2022 and 2024 totaled 5.3 percent, with:
    - Construction accounting for 4.4 percentage points of that 5.3 percent decline.
    - Machinery and equipment investment contributing another 1.9 percentage points to the decline.
    - Other investment (including intangibles and agricultural investment) increased by 5 percent over the same period, contributing +1 percentage point to overall investment growth.
  - The decline in investment was driven by the private sector; public sector investment remained positive.
- External demand and net exports:
  - Contribution of net exports to GDP growth averaged -0.2 percentage points between 2015Q1 and 2019Q4; since 2022 this contribution declined to around -0.8 percentage points of GDP.
  - Goods exports in 2025 were around 5 percent below their 2022 level, mainly due to falling exports of intermediate and capital goods (which account for roughly three-quarters of Germany’s goods exports).
  - Goods imports also declined faster than goods exports in 2023–most of 2024, so net exports of goods still contributed positively to GDP during 2023 and most of 2024 despite falling exports.
- Back-of-the-envelope estimate:
  - If German goods and services exports had evolved according to the historical relationship with sales market growth between 2022 and 2025, real GDP growth would have been higher by an average of 0.6 percentage points per year, all else equal.

### Production-side and sectoral findings
- Recession concentrated in manufacturing and construction—these accounted for the bulk of the growth gap relative to the euro area.
- Decline in output driven primarily by falling productivity, especially in industry and construction, rather than by reductions in hours worked.
  - Some productivity decline reflects cyclical labor hoarding amid weak aggregate demand.
- Construction sector was heavily affected by the unwinding of a pre-shock real-estate price boom as interest rates rose.
- Manufacturing, trade/travel/accommodation/food, construction, and professional services/science/technology account for slightly over half of German GVA and explain over two thirds of Germany’s growth gap relative to the rest of the euro area for the period analyzed, with manufacturing as the largest contributor.

### Exports, market shares, and competitiveness
- Between 2017 and 2025:
  - German exports of goods and services expanded by 0.5 percent per year while sales markets expanded by 2.6 percent per year.
  - Between 2022 and 2025 German exports fell by 3.9 percent while sales markets expanded by almost 6 percent.
- Export market share trends:
  - German nominal global market shares in goods exports have fallen since 2017 and developed particularly weakly since 2021.
  - A long-run relationship between changes in PPP GDP share and export market share suggests about 20 percent of the decline in Germany’s global share since 2016 is in line with its declining share of global GDP since 2016.
- Competitiveness indicators and drivers:
  - Cyclically adjusted trade balance has declined since the mid-2010s, though the level of the cyclically adjusted current account remains substantial.
  - Survey measures show deteriorating external competitiveness for German industry relative to EU peers.
  - Rising relative costs (including labor and energy) at least relative to the US and major Asian economies, and low productivity growth, are likely contributors to the competitiveness decline.
  - Competitors’ export prices (adjusted for exchange rate movements) declined significantly over the last two years, in part because of euro appreciation.

### Box 1 — Trade and Competition with China (highlights)
- Europe accounts for about two-thirds of Germany’s trade.
- Germany’s trade with China (four quarters through Q4 2025):
  - Exports to China: 5 percent of total exports, about €88 billion, or 2 percent of GDP.
  - Imports from China: 10 percent of total imports, about €185 billion, or 4 percent of GDP.
- Drivers of recent decline in net exports to China include:
  - euro appreciation against the yuan;
  - slower growth of Chinese domestic demand following the drop in domestic property prices;
  - Chinese industrial subsidies;
  - reduced production and exports of German energy-intensive goods following the spike in European energy prices in 2022;
  - Chinese productivity advances and increased localization of production (rising German FDI into China).
- Imports from China spiked in 2021–22, with 87 percent of the sharp pickup in demand for solar technology during the energy crisis sourced from China; much of the spike reversed during 2023.
- Survey evidence: nearly two-thirds of German firms report heightened competition from Chinese imports, particularly in third markets.

### Box 2 — A big drop in energy value-added (highlights)
- Wholesale natural gas prices in Germany rose sharply in 2022 following Russia’s invasion of Ukraine and the shut-off of Russian gas supplies.
- Real energy production in the national accounts dropped by around 14 percent in 2022 as the cost of generating electricity rose.
- Production recovered in 2023, but intermediate consumption increased sharply, leaving real gross value-added depressed.
- Production declined again in 2024, and value-added in the energy sector remains around 50 percent below the 2021 level.
- Value-added in the energy sector contributed just 0.1 percentage points to the overall decline in gross value-added since 2022.
- The decline in value-added in the energy sector reduced total gross value-added by 0.5 pp between 2021 and 2024.
- In contrast, the rest of the economy contributed a positive 1.5 pp to total value-added during this period.

### Productivity, skills, firm dynamics, and finance
- Structural challenges amplifying the cyclical downturn include:
  - underinvestment in public infrastructure, skills, and innovation;
  - accumulating red tape;
  - population aging;
  - one-off adverse effects from the 2022 energy-price shock;
  - deteriorating external competitiveness.
- Firm dynamics:
  - Small, fast-growing firms make a critical contribution to aggregate productivity growth.
  - Industrial policies that subsidize large incumbent firms can slow reallocation and discourage innovation.
- Venture Capital context:
  - Text chart referenced the figure "0.53 percent of GDP in the U.S." for Venture Capital Investment (Percent of GDP) comparison.
- Firm age (Top 10 largest firms by capitalization) — averages shown:
  - Germany — Average 145 years.
  - United States — Average 53 years.
- Skills and education:
  - Low training rates for adults, population aging, and weak foundational and digital skills are enlarging a skills gap.
  - Education and training systems have not adapted sufficiently; education spending efficiency has declined (efficiency gap scaled 0–1, where 0 = fully efficient and 1 = fully inefficient).

### Policy implications and recommendations (selected)
- Boost demand and investment, with emphasis on targeted fiscal stimulus to increase public investment.
- Reforms to support innovation and firm dynamism, including fostering a more supportive environment for innovative start-ups.
- Structural reforms to address skills gaps and improve education and training system adaptability and spending efficiency.
- Measures to bolster venture capital and equity financing in Europe, including through Savings and Investment Union and Single Market reforms to enhance economies of scale.

### Key quantitative figures (selected, preserved exactly as in source)
- average of 0.7 percent per year in 2023-24
- 0.2 percent in 2025
- Around 60 percent (structural) vs 40 percent (cyclical) for end-2022 to Q2 2025 attribution
- Decomposition of trend growth decline: Around 40 percent (trend capital and labor inputs) and the remaining 60 percent (declining trend productivity)
- Real disposable income: 1.5 percent in 2024
- Private consumption growth: 0.5 percent in 2024
- Decline in real investment between 2022 and 2024: 5.3 percent
  - Construction: 4.4 percentage points of the 5.3 percent decline
  - Machinery and equipment: 1.9 percentage points
  - Other investment: +5 percent, contribution +1 percentage point
- Net exports contribution to GDP growth: average -0.2 percentage points (2015Q1–2019Q4) to around -0.8 percentage points since 2022
- Goods exports in 2025: around 5 percent below their 2022 level
- Exports 2022–2025: fell by 3.9 percent while sales markets expanded by almost 6 percent
- Estimated GDP gain if exports had tracked historical relationship: +0.6 percentage points per year on average
- Germany–China trade shares (four quarters through Q4 2025):
  - Exports to China: 5 percent of total exports, about €88 billion, or 2 percent of GDP
  - Imports from China: 10 percent of total imports, about €185 billion, or 4 percent of GDP
- Real energy production drop in 2022: around 14 percent
- Energy sector value-added remains around 50 percent below the 2021 level
- Energy sector contribution to gross value-added decline since 2022: 0.1 percentage points
- Energy sector reduced total gross value-added by 0.5 pp between 2021 and 2024; rest of economy contributed +1.5 pp over same period
- Venture Capital Investment: "0.53 percent of GDP in the U.S." (text chart)

*Source: IMF Working Papers — Drivers of Germany’s Growth Downturn (excerpts from wpiea2026112-source-pdf).*

### 1. Expenditure Contributions to GDP Growth _______________________________________________ 5

### wpiea2026112-source-pdf - 1. Expenditure Contributions to GDP Growth _______________________________________________ 5

### Major document structure and headings
- The document contains the following main sections (listed here in the order presented):
  - 1. Expenditure Contributions to GDP Growth
  - 2. Real Wages and Household Savings
  - 3. Gross Fixed Capital Formation (GFCF)
  - 4. External Demand Developments
  - 5. Goods Trade
  - 6. Services Trade and Tourism Spending
  - 7. Export Market Share and Sales Market Growth
  - 8. Competitiveness Measures and Relative Costs
  - 9. Competitiveness in Product and Sales Markets
  - 10. Sectoral Contribution to GVA and Employment
  - 11. Manufacturing GVA and Industrial Production
  - 12. Vehicle Manufacturing and Exports
  - 13. Industrial Output, Capacity Utilization, and Employment
  - 14. Construction Indicators
  - 15. Productivity and Hours Worked
  - 16. Labor Hoarding, Capital/Labor Ratio, and Part-time Work
  - 17. Productivity, Skills and Spending Efficiency
  - 18. Skills and Education Spending Efficiency
- BOXES:
  - BOX 1. Trade and Competition with China
  - BOX 2. A Big Drop in Energy Value-Added
- REFERENCES

### Executive summary (Introduction excerpt)
- Germany’s real GDP declined significantly over 2023–24.
- Real GDP recovered sharply following the COVID-19 shock but then contracted by an average of 0.7 percent per year in 2023-24 before expanding only modestly by [text truncated in source].

### Available quantitative findings (explicitly preserved)
- "average of 0.7 percent per year in 2023-24"

### Notes on content availability
- The supplied content unit includes the table of contents and the opening lines of the Introduction. Detailed findings, projections, analysis, and policy recommendations for many sections are listed by section title but not included in the supplied excerpt. No additional numerical values, dates, or policy text beyond the lines quoted above are present in the provided content.

*Source: https://www.imf.org/-/media/files/publications/wp/2026/english/wpiea2026112-source-pdf.pdf*

### 0.2 percent in 2025. Much of this decline can be ascribed

### Drivers of Germany’s Growth Downturn

### Overview
- Recent German growth weakness (ending mid–2025) reflects both cyclical and structural factors.
- Much of the decline since 2022 is linked to: (i) the large spike in natural gas prices in Europe in 2022 after Russia’s invasion of Ukraine and its shut-off of gas exports to Germany; and (ii) ECB monetary tightening to contain inflation resulting from the energy shock and other factors.
- Growth weakness in Germany since 2022 has been much larger than the average for the rest of the euro area, where growth remained positive throughout the entire period.

### Methodology: Multivariate Filter (MVF) and Data Sources
- Uses a multivariate filter (MVF) approach (based on Benes et al (2010)) to estimate potential output and the output gap.
- Model inputs: GDP, core inflation, unemployment, capacity utilization; augmented with energy prices in both the inflation and potential output equations.
- Controls added for the unusual pandemic effect on potential output using short-term work schemes as a proxy.
- Analysis uses both expenditure and production sides of the national accounts and supplementary data.

### Cyclical Versus Structural Contributions
- Model estimate for the period end-2022 to Q2 2025:
  - Around 60 percent of lower growth relative to Germany’s average for 2000–19 is ascribed to structural factors (decline in trend growth).
  - The remaining 40 percent is ascribed to cyclical factors.
- Decomposition of the decline in trend growth:
  - Around 40 percent of the decline in trend growth is ascribed to a decline in trend capital and labor inputs (in part due to population aging).
  - The remaining 60 percent of the decline in trend growth is explained by other factors, mainly declining trend productivity growth.

### Expenditure-Side Drivers
- Broad-based downturn: nearly all major expenditure categories contributed less to growth between end-2022 and Q2 2025 than in previous years; investment and exports were the largest negative contributors.
- Private consumption:
  - Real disposable income increased by 1.5 percent in 2024.
  - Private consumption growth remained subdued at 0.5 percent in 2024.
  - Higher-than-usual household savings rates during 2023–24: analysis attributes about one-third of the increase in the savings rate between early-2022 and late-2024 to higher interest rates, around a fifth to slowly rising real incomes, another fifth to transfer payments to cushion high energy prices, and about one-third to unexplained factors (precautionary savings and past declines in real wealth).
- Investment:
  - Real investment turned negative as a contributor to growth following the energy-price shock and monetary tightening.
  - In the five years prior to the pandemic, real investment contributed 0.6 percentage points to growth on average.
  - The decline in real investment between 2022 and 2024 totaled 5.3 percent, with:
    - Construction accounting for 4.4 percentage points of that 5.3 percent decline.
    - Machinery and equipment investment contributing another 1.9 percentage points to the decline.
    - Other investment (including intangibles and agricultural investment) increased by 5 percent over the same period, contributing +1 percentage point to overall investment growth.
  - The decline in investment was driven by the private sector; public sector investment remained positive.
- External demand and net exports:
  - Contribution of net exports to GDP growth averaged -0.2 percentage points between 2015Q1 and 2019Q4; since 2022 this contribution declined to around -0.8 percentage points of GDP.
  - Goods exports in 2025 were around 5 percent below their 2022 level, mainly due to falling exports of intermediate and capital goods (which account for roughly three-quarters of Germany’s goods exports).
  - Goods imports also declined faster than goods exports in 2023–most of 2024, so net exports of goods still contributed positively to GDP during 2023 and most of 2024 despite falling exports.

### Production-Side and Sectoral Findings
- Recession concentrated in manufacturing and construction—these accounted for the bulk of the growth gap relative to the euro area.
- Decline in output driven primarily by falling productivity, especially in industry and construction, rather than by reductions in hours worked.
  - Some productivity decline reflects cyclical labor hoarding amid weak aggregate demand.
- Construction sector was heavily affected by the unwinding of a pre-shock real-estate price boom as interest rates rose.

### Exports, Market Shares, and External Competitiveness
- Between 2017 and 2025:
  - German exports of goods and services expanded by 0.5 percent per year while sales markets expanded by 2.6 percent per year.
  - Between 2022 and 2025 German exports fell by 3.9 percent while sales markets expanded by almost 6 percent.
- Back-of-the-envelope estimate: if German goods and services exports had evolved according to the historical relationship with sales market growth between 2022 and 2025, real GDP growth would have been higher by an average of 0.6 percentage points per year, all else equal.
- Export market share trends:
  - German nominal global market shares in goods exports have fallen since 2017 and developed particularly weakly since 2021.
  - A long-run relationship between changes in PPP GDP share and export market share suggests about 20 percent of the decline in Germany’s global share since 2016 is in line with its declining share of global GDP since 2016.
- Competitiveness indicators:
  - Cyclically adjusted trade balance has declined since the mid-2010s, though the level of the cyclically adjusted current account remains substantial.
  - Survey measures show deteriorating external competitiveness for German industry relative to EU peers.
  - Rising relative costs (including labor and energy) at least relative to the US and major Asian economies, and low productivity growth, are likely contributors to the competitiveness decline.
  - Export price trends: competitors’ export prices (adjusted for exchange rate movements) declined significantly over the last two years, in part because of euro appreciation.

### Competition and Structural Shifts in Markets
- Germany has lost import share in several markets, with particularly pronounced declines in EMDEs; China and emerging Asia have gained market share in EMDEs.
- Key competitors, particularly China, have diversified and increased the complexity of their export baskets, making inroads into traditional German product markets.
- Sectoral competitiveness:
  - Energy-intensive industries and key capital goods industries have shown notable declines in competitiveness.
  - Intermediate and investment goods (which account for around 50 percent of German manufacturing output) lagged behind global import growth, helping to explain much of the decline in manufacturing output.

### Productivity and Long-Term Structural Challenges
- Structural challenges amplifying the cyclical downturn include:
  - Longer-term subdued productivity growth due to persistent underinvestment in public infrastructure, skills, and innovation, as well as excessive red tape.
  - Population aging.
  - One-off adverse effects from the 2022 energy-price shock.
  - Deteriorating external competitiveness.
- Average productivity growth comparisons:
  - Productivity growth in Germany (and Europe) has lagged behind key competitors over recent decades.
  - Export price growth comparisons show Germany lagging while competitor export prices fell in recent years (2006–2019 and 2023–2025 comparisons shown).

### Key Quantitative Findings and Indicators (selected)
- 0.2 percent in 2025 (fragment present in source header).
- Structural vs cyclical attribution: 60 percent structural; 40 percent cyclical.
- Contribution decomposition of trend growth decline: 40 percent due to trend capital and labor inputs; 60 percent due to declining trend productivity.
- Real disposable income increased by 1.5 percent in 2024.
- Private consumption growth: 0.5 percent (2024).
- Real investment decline between 2022 and 2024: 5.3 percent total decline.
  - Construction: 4.4 percentage points of the 5.3 percent decline.
  - Machinery and equipment: 1.9 percentage points.
  - Other investment: +5 percent (contribution +1 percentage point).
- Net exports contribution to GDP growth: from average -0.2 percentage points (2015Q1–2019Q4) to around -0.8 percentage points since 2022.
- Goods exports in 2025: around 5 percent below 2022 level.
- Exports 2022–2025: fell by 3.9 percent while sales markets expanded by almost 6 percent.
- Estimated GDP gain if exports had tracked historical relationship: +0.6 percentage points per year on average.

*Source: IMF Working Papers — Drivers of Germany’s Growth Downturn (excerpts).*

### Box 1. Germany: Trade and Competition with China

### Box 1. Germany: Trade and Competition with China

### Trade patterns and magnitudes
- Europe accounts for about two-thirds of Germany’s trade.
- Germany’s trade with China was 5 percent of its total exports during the four quarters through Q4 2025, amounting to about €88 billion, or 2 percent of GDP.
- Germany’s imports from China over the same period were 10 percent of its total imports, amounting to €185 billion, or 4 percent of GDP.
- Germany exports mainly vehicles, machinery, and electrical equipment to China; its main imports from China are in the same sectors.

### Recent trends in net exports to China and drivers of decline
- Germany’s net exports to China have declined in recent years.
- Factors cited for the decline include:
  - euro appreciation against the yuan;
  - slower growth of Chinese domestic demand following the drop in domestic property prices;
  - Chinese industrial subsidies;
  - reduced production and exports of German energy-intensive goods following the spike in European energy prices in 2022;
  - Chinese productivity advances in sectors that compete with imports from Germany, such as autos;
  - an increased shift to localized production, evidenced by rising German FDI into China (localization may reflect geopolitical considerations and market changes, e.g., Chinese demand shifting increasingly to EVs, which are more efficient to produce locally than ICE vehicles because EVs are heavier and hence more expensive to transport).
- Increased exports to Europe have offset some of the decline to China and, more recently, to the US in the wake of higher US tariffs on German goods exports.

### Imports spike in 2021–22 and solar technology sourcing
- Germany’s imports from China have been on a rising trend over the last decade as a share of GDP and as a share of total German imports.
- Imports from China spiked in value terms in 2021–22. Contributing factors included:
  - higher chemical prices following the 2022 energy crisis;
  - higher electrical and machinery prices and demand amidst post-pandemic supply-chain issues;
  - a sharp pickup in demand for solar technology during the energy crisis following Russia’s invasion of Ukraine, of which 87 percent was sourced from China.
- The spike in value terms mostly reversed during 2023 as the energy price shock and post-pandemic supply chain issues eased.

### Competitive pressure from Chinese firms in third markets
- Over the past 15 years, China’s share of global exports has risen substantially while Germany’s share has declined.
- The decline in German export share has been even more acute since 2017 and uniform across regions.
- Differences in relative trends are particularly evident in the chemical, machinery, and vehicle sectors.
- Possible explanations include:
  - China’s convergence-related productivity growth raising its share of global GDP and exports relative to Germany;
  - compositional shifts with Chinese production moving into sectors that compete more with German exports;
  - yuan depreciation against the euro;
  - effects of industrial subsidies.
- A survey by IW Koeln reports nearly two-thirds of German firms feel heightened competition from Chinese imports, particularly from those exporting in third markets.
- Despite increased competition, sectoral terms-of-trade indexes suggest most German export prices have been broadly stable or rising in recent years relative to import prices (little evidence of widespread price-cutting by German exporters).

### Linkages to sectoral growth underperformance
- Manufacturing, trade/travel/accommodation/food, construction, and professional services/science/technology account for slightly over half of German GVA and explain over two thirds of Germany’s growth gap relative to the rest of the euro area for the period analyzed, with manufacturing as the largest contributor.
- Employment declines in Germany are concentrated in these four sectors.
- The report investigates drivers of the downturn in manufacturing and construction in more detail, noting that:
  - monetary tightening, higher energy prices, and weak demand for key German exports contributed to the acute decline in manufacturing and construction output;
  - value-added in the energy sector declined sharply in 2022 following the energy-price shock (mostly outside the reference period).
- For trade/travel/accommodation/food, relative weakness likely reflects weak domestic demand and subdued growth in real travel spending per tourist arrival.
- Weakness in professional services/science/technology mirrors the decline in exports of R&D and professional and management services.

*International Monetary Fund — Box 1. Germany: Trade and Competition with China (excerpt from IMF Working Paper).*

### Box 2. Germany: A Big Drop in Energy Value-Added

### Box 2. Germany: A Big Drop in Energy Value-Added

### Energy-price shock and wholesale electricity/gas prices
- Wholesale natural gas prices in Germany rose sharply in 2022 following Russia’s invasion of Ukraine and the subsequent shut-off of Russian gas supplies.
- Higher natural gas prices increased the cost of generating electricity from gas and coal in Germany and elsewhere in Europe.
- The energy-price shock drove gas and electricity prices higher in other major European economies, but the effect was not as strong as in Germany because these countries’ natural gas sources were less exposed to the shut-off of Russian gas and/or their electricity pricing depended less on natural gas generation.
- Rising demand from Europe for supplemental LNG supplies also drove gas and electricity prices higher in Asia and the U.S., but to a much smaller degree.

### Impact on Germany’s energy sector output and value-added
- Value-added in the energy sector dropped sharply in 2022 and remains well below the 2021 level.
- The energy sector contributed just 0.1 percentage points to the overall decline in gross value-added since 2022.
- Real energy production in the national accounts dropped by around 14 percent in 2022 as the cost of generating electricity rose.
- Production recovered in 2023, but intermediate consumption increased sharply, resulting in real gross value-added remaining depressed.
- Production declined again in 2024, and value-added in the energy sector remains around 50 percent below the 2021 level.
- The decline in value-added in the energy sector reduced total gross value-added by 0.5 pp between 2021 and 2024.
- In contrast, the rest of the economy contributed a positive 1.5 pp to total value-added during this period.

### Definitions and data notes
- Energy refers to electricity, gas, steam, and air conditioning supply in the national accounts.
- Sources cited in the original material: Haver Analytics, Ember Energy, Bloomberg, US EIA, Destatis, and IMF staff calculations.

*Source: IMF staff analysis in the provided PDF excerpt.*

### 0.53 percent of GDP in the U.S. (text chart). Fostering

### Drivers of Germany’s Growth Downturn

### Main findings on the downturn
- Analysis suggests about 40 percent of the downturn reflected temporary cyclical factors while about 60 percent reflected lower potential growth.
- The decline is broad-based and not confined to specific sub-sectors; nearly all major expenditure categories—particularly investment and exports—acted as significant drags on activity.
- From the production side, the contraction has been especially pronounced in the manufacturing and construction sectors due to higher interest rates, higher energy prices, subdued external demand, and weak sentiment.
- The GDP decline is mirrored in a substantial drop in productivity, especially in industry and construction, which appears to be driven by lower investment and cyclical labor hoarding amid weak demand.
- Longer-term trends amplifying the cyclical downturn include:
  - underinvestment in public infrastructure, skills, and innovation;
  - accumulating red tape;
  - population aging;
  - deteriorating external competitiveness (although the level of the current account surplus remains substantial).

### Innovation, firm dynamics, and finance
- Small, fast-growing firms make a critical contribution to aggregate productivity growth (citing Acemoglu et al. 2018 as referenced in the source).
- Industrial policies that subsidize often large incumbent firms can lower economic growth by slowing reallocation and discouraging innovation by both continuing firms and new entrants (as noted in the source).
- Venture Capital Investment (Percent of GDP) is shown comparatively for Germany, United Kingdom, and United States (chart referenced). The source text includes the figure "0.53 percent of GDP in the U.S." (text chart).
- The text notes policy levers that could bolster VC and other equity financing in Europe, including Savings and Investment Union and Single Market reforms to enhance economies of scale.

### Firm age and market structure (Text Table 1: Germany: Age of Top 10 Largest Firms by Capitalization)
- Germany — Age (yrs):
  1. SAP 53
  2. Siemens 178
  3. Deutsche Telekom 1/78
  4. Allianz 135
  5. Rheinmetall 136
  6. Munich RE 145
  7. Deutsche Bank 155
  8. Mercedes Benz 99
  9. BMW 109
  10. Merck 357
  - Average 145
  - Note: "1/ Based on founding date of Deutsche Bundespost, which was broken up into 3 companies in 1995, one of which was Deutsche Telekom. An older age could be considered based on Deutsche Bundespost's predecessors."
- United States — Age (yrs):
  1. NVIDIA #32
  2. Microsoft #50
  3. Apple #49
  4. Alphabet #27
  5. Amazon #31
  6. Meta Platforms (Facebook) #21
  7. Broadcom #64
  8. Tesla #22
  9. Berkshire Hathaway #186
  10. Oracle #48
  - Average 53

### Skills, education, and human capital
- Low training rates for adults, population aging, and weak foundational and digital skills are leading to a growing skills gap while educational and training systems have not adapted sufficiently and education spending efficiency has declined.
- Figure references:
  - Trends in Maths, Reading and Science (2022 score points) are shown for Germany, France, Spain, Italy, United Kingdom.
  - Public Education Spending Efficiency Gap (Scale, 0-1) is shown over time for France, Germany, Italy, Spain, EU27 average. Note: "The efficiency gap is distance to the spending efficiency frontier and ranges from 0 (fully efficient) to 1 (fully inefficient)."
- The chapter emphasizes the need to address skills and education spending efficiency as part of structural responses.

### Policy implications and recommendations
- Germany’s recovery will depend not only on policies to boost demand and investment but also on addressing deeper challenges in productivity, innovation, and competitiveness.
- Specific policy priorities highlighted in the conclusion:
  - Policies to boost demand and investment, with particular emphasis on much-needed fiscal stimulus focused on increasing public investment.
  - Reforms to support innovation and firm dynamism, including fostering a more supportive environment for innovative start-ups.
  - Structural reforms to address skills gaps and improve education and training system adaptability and spending efficiency.
  - Measures to bolster venture capital and equity financing in Europe, including through Savings and Investment Union and Single Market reforms to enhance economies of scale.

*Source: Drivers of Germany’s Growth Downturn, Working Paper No. WP/2026/112 (extracted text).*

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_Source: https://www.imf.org/-/media/files/publications/wp/2026/english/wpiea2026112-source-pdf.pdf_