Beyond Temporary Weakness

Germany’s economy is facing a structural crisis, not just a short-term downturn, according to Chancellor Friedrich Merz. In a speech delivered to members of the Christian Democratic Union (CDU) in Osnabrück—home to automotive giant Volkswagen—Merz admitted that reviving the economy has proven more difficult than anticipated.

“I say this also self-critically – this task is bigger than one or the other may have imagined a year ago,” Merz stated. “We’re not just in a period of economic weakness, we are in a structural crisis of our economy.”

Competitiveness Under Pressure

Merz acknowledged that large parts of Germany’s economy are no longer truly competitive, citing the automotive sector as a key example. He pointed to Volkswagen’s 36% after-tax earnings slump in Q2 as just “one of many messages” signaling deeper economic trouble.

“By this week at the latest, no one should be under any illusions about how deep and far-reaching the challenges that face us are,” he said. “The quality is still good and company leaders recognize these challenges. But the underlying conditions in Germany simply haven’t been good enough for the last decade.”

Auto Industry in Decline

The downturn in Germany’s iconic auto sector is fueling broader concerns:

Volkswagen: 36% drop in Q2 after-tax earnings
BMW: 29% decline in first-half profits compared to last year

These figures reflect a sector struggling to adapt to global competition, electrification, and shifting consumer demands.

Economic Outlook

Germany already endured a recession last year, and the IMF now projects zero growth for the current year. As the EU’s largest economy, Germany’s stagnation poses risks for the broader European economic landscape.