Germany's export-led economic model faces unprecedented strain just as support for the far-right Alternative for Germany (AfD) party reaches a new peak. Chinese rivals are steadily eroding the market share of major German industrial players, while persistently high energy prices, elevated labor costs and excessive red tape are adding to the structural crisis. After two years of contraction, real GDP edged up only 0.2% last year, according to the Federal Statistical Office, Destatis.
Exports to China fell 9.7% in 2025, withGerman vehicle and part shipments plunging by a third. While there are signs the German economy is turning the corner, the government's latest forecast of 1.3% growth in 2026 is still modest compared with the pre-COVID boom years. The AfD is currently polling ahead of all other political parties in Germany.
The country's many economic challenges have been a major factor in the right-wing populists' rise. Germany's domestic intelligence agency sees reliable indications that the AfD is right-wing extremist in its entirety. The party has vowed to put Germany back on a growth path by ending the transition to renewable energies, lowering taxes and renegotiating European Union treaties, while also reforming welfare and sharply restricting immigration.
As Chancellor Friedrich Merz's coalition searches for a fresh growth strategy to fend off the rise in populist politics, the government has set out its high-tech agenda focusing on six priority sectors. These are artificial intelligence (AI), quantum computing, microelectronics, biotechnology, clean energy (including nuclear fusion) and climate-neutral mobility. Irene Bertschek, head of the Digital Economy research unit at the Leibniz Center for European Economic Research (ZEW), argues that Germany's research in these "key enabling technologies is very strong, particularly in the area of climate-neutral technologies." Yet, the results are often commercialized abroad, Bertschek told DW, with the United States leading in AI and China closing the gap quickly.
To view this video please enable JavaScript, and consider upgrading to a web browser that supports HTML5 video A report published Monday by the Made for Germany initiative — a group of 147 companies and investors — builds on the government's plan, estimating that these and other new technologies could attract up to €4.1 trillion ($4.6 trillion) in investment by 2035. Realizing that potential, however, will depend less on today's industrial giants, like Volkswagen, Siemens and BASF. "It will not primarily be the established companies that conquer these new fields, but innovative newcomers — startups," Oliver Falck, director of the ifo Center for the Economics of Innovation and Digital Transformation, told DW.
The task, Falck said, is to create the right conditions for startups to emerge, including proximity to top universities, access to private capital and enough freedom to experiment. He argues for state financing during the early-stage "valley of death" — the risky phase between research and commercial viability when private financing is often scarce. There are clear signs this shift is already happening.
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