Can Germany overhaul its economy before AfD grows stronger?
Conflicts, rising costs and Chinese competition are testing Germany's economic model like never before. Which new sectors could revive growth and contain the far-right AfD, whose support has grown larger than ever?
Germany's export-focused economy is encountering significant challenges, as Chinese competitors erode market share and mounting energy costs, labor expenses, and bureaucratic hurdles strain the system. Real GDP growth slowed to a mere 0.2% last year, according to federal statistics. Exports to China plummeted by 9.7% in 2025, while German vehicle and component shipments saw a 33% drop.
Despite these hurdles, early indications suggest a modest recovery, with the government forecasting a 1.3% growth rate in 2026. This growth projection falls short of the pre-COVID boom years. The Alternative for Germany (AfD) party, known for its right-wing populism, is currently leading in public opinion polls, capitalizing on these economic woes.
The AfD's platform includes reversing the shift to renewable energy, lowering taxes, renegotiating European Union treaties, and implementing stricter welfare policies and immigration controls. In response, Chancellor Friedrich Merz's coalition has outlined a high-tech growth strategy targeting six key sectors: artificial intelligence, quantum computing, microelectronics, biotechnology, clean energy (including nuclear fusion), and climate-neutral mobility.
While German research in these enabling technologies is strong, particularly in climate-neutral technologies, commercialization often occurs abroad. A recent report by the Made for Germany initiative, comprising 147 companies and investors, estimates that these technologies could attract up to €4.1 trillion in investment by 2035.
However, realizing this potential hinges on nurturing innovative startups rather than relying on established firms. Oliver Falck, director of the ifo Center for the Economics of Innovation and Digital Transformation, advocates for government support during the early-stage of startups, known as the "valley of death," where private financing is scarce.
Data from Deutsche Bank and startupdetector indicate a surge in new ventures, with over 3,000 startups established in the first half of 2026, marking an 88% increase from the previous year. One-third of these startups focus on AI. Venture-capital investment also surged by 44% to €5.8 billion in the same period, benefiting companies such as Neura Robotics and drone manufacturers Stark and Quantum Systems.
US investors are increasingly acquiring Germany's traditional small and medium-sized enterprises (SMEs) for their specialized technologies. Bertschek emphasizes the importance of SMEs leveraging their vast production data and collaborating with AI startups to foster growth. Sven Gabor Janszky, chairman of the futures-research institute 2b AHEAD, proposes the creation of special economic zones to accelerate the shift to new high-tech sectors.
These zones would lower regulations, attract ambitious talent, and provide financial support, drawing inspiration from Silicon Valley and Chinese mega-cities like Shenzhen and Shanghai's Pudong district.
Written by urgent.news from DW Business's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
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