Germany is now an economic laggard in the EU, says QNB

Germany's economic standing in the European Union has deteriorated, according to QNB's analysis. Real output declined in 2023, and has stagnated or grown minimally since, while the Eurozone has expanded. In 2026, Germany's GDP grew 1.0% year-on-year, down from the IMF's forecast of 0.5%. The country's economy is heavily reliant on its manufacturing and export-oriented small and medium-sized firms, known as Mittelstand.

However, these sectors have faced challenges, with manufacturing value-added peaking in 2017 and industrial production now 15% below its peak. The IMF attributes much of Germany's shortfall to sustained underperformance across the manufacturing and construction sectors. Germany's manufacturing sector has been hampered by a lack of investment, an ageing infrastructure, digitalisation lag, and a shrinking workforce.

These factors have combined with a growing competitiveness squeeze from China, which has become a formidable rival in the export market, leading to a sharp decline in German exports to China. Additionally, energy costs have put pressure on German industry, with electricity prices currently roughly double those in the US. The conflict between the US and Iran has further exacerbated this vulnerability, causing energy prices in Germany to increase in March 2026.

All these factors suggest that Germany's underperformance is primarily due to its industrial and export-led model, which is now facing significant challenges. QNB believes that Germany will need to modernize its infrastructure and undertake painful structural reforms to reinvent its economic model, which could shape the future of Europe.