German Chancellor Friedrich Merz has highlighted the restoration of economic growth as the primary focus for the government in 2026. Merz, in a letter to his governing coalition members, acknowledged the insufficiency of previous measures to enhance Germany’s competitiveness. He emphasized the need for decisive political and legislative actions to create a more favorable environment for businesses, aiming to pave the way for economic recovery.
Germany experienced economic contraction in both 2023 and 2024, with forecasts indicating minimal growth of 0.1% in 2025 due to weakened external demand, particularly a notable decline in exports to the United States. Challenges such as high energy costs, subdued global demand, and slow structural reforms have hindered Germany’s recovery, exacerbated by US tariff increases in 2025 that further strained exporters.
Since assuming office in May 2025, Merz has committed to revitalizing the largest economy in Europe through significant public spending and increased investments in defense and infrastructure. While the government has implemented tax cuts and other reforms, business groups have expressed concerns over the pace of change, emphasizing the time required for a full recovery.
In a New Year’s address, Merz emphasized the importance of Europe asserting its interests in a rapidly changing global landscape. He described the current situation as a significant shift marked by geopolitical transformations, rising protectionism, and evolving transatlantic relations. Merz underscored the necessity for Europe to defend its interests more assertively, particularly amidst changing dynamics with the United States.
Merz also addressed the security landscape, emphasizing the need for Germany to enhance its deterrence and defense capabilities to ensure long-term peace. Regarding the economy, he pledged to focus on enhancing Germany’s competitiveness by streamlining regulations and promoting technological innovation. Merz expressed optimism that 2026 could be a pivotal year for Germany and Europe, enabling a resurgence of peace, freedom, and prosperity.
