IW study: Germany's economy has only grown since 2020 thanks to the state
According to the German Economic Institute, the private sector has dragged growth down by around 0.5 points a year since 2020. Government consumption and public investment made up for it.
Symbolic image · Photo: Henning Schlottmann (User:H-stt) / Wikimedia Commons, CC BY-SA 4.0 (cropped and resized)
Germany's economy has grown since 2020 only because of rising government spending, according to an analysis by the German Economic Institute (IW). From 2020 to 2025, economic output rose by an average of just 0.2% a year. The private sector reduced growth by about 0.5 percentage points a year on average, while government consumption and public investment added around 0.6 points. In the 2000s the private sector still contributed 0.2 points a year to growth, and in the 2010s as much as 1.4 points, with the state adding 0.5 points.
The gap is most visible in investment, the IW study shows, as explained by IW economic research head Michael Grömling: public investment is more than 20% above its 2019 average in real terms, while private investment in the second quarter of 2026 was more than 10% below it. Real government consumption has risen by more than 16% since 2019, private consumption by only 4.5%. The IW sees risks if state stimulus is financed with debt. It attributes weak private investment partly to high labour and energy costs and bureaucracy, and calls for structural reforms alongside infrastructure spending.