economy
May 10, 2026
From market to military: Germany's private sector is imploding.
German public spending has significantly increased as the private sector implodes
TL;DR
- Germany's economy grew by 0.2% in 2025, emerging from a recession, but this growth was predominantly driven by public spending.
- Government spending increased by 5.6% in 2025, now comprising over 50% of Germany's GDP, a significant departure from its historically fiscally conservative approach.
- Traditional sectors like automotive and chemicals are struggling with high energy costs and global competition, leading to declining orders and sluggish share prices.
- Defense contractors and state-backed industrial firms have experienced significant growth, with shares like Rheinmetall skyrocketing due to government spending and defense contracts.
- This economic shift is characterized as 'military Keynesianism,' where state-funded demand is propping up specific sectors while the broader private sector weakens.
- Germany's manufacturing sector has seen job losses, with the pace accelerating in 2025, impacting the economy more significantly due to its reliance on manufacturing.
- The country's economic model, historically reliant on cheap energy, Chinese demand, and US security, is facing challenges as these pillars weaken.