After two years of recession, the country's economy faces another year of near-zero growth

Unemployment in Germany has risen to a 12-year high, official figures released on Friday show. The labor report comes as the country's struggling economy risks a third consecutive year without growth.

Data from the Federal Employment Agency (BA) shows that 177,000 more people were out of work in January than in December, bringing the total to over 3 million. The seasonally unadjusted unemployment rate climbed by 0.4 percentage points to 6.6%.

"There is currently little momentum in the labor market," said BA chief Andrea Nahles, noting that companies remain cautious amid slow growth and economic uncertainty.

According to S&P Global's flash Purchasing Managers Index (PMI), Germany's privatesector business activity strengthened in January, however, manufacturing remained weak and job cuts accelerated.

Germany's economic difficulties come after two consecutive years of recession in 2023 and 2024, and a period of near-stagnation in 2025. This week, the government lowered its growth forecasts for 2026 and 2027, warning that fiscal measures have not stimulated the economy as quickly as anticipated. Economy Minister Katherina Reiche said that the country must pivot toward new "growth engines," arguing that traditional export strengths "no longer carry our growth."

The slump has been compounded by high energy costs after the EU reduced imports of relatively cheap Russian pipeline gas following the escalation of the Ukraine conflict in 2022. The bloc's decision has triggered an energy crisis, sending wholesale energy prices soaring, increasing the cost of living, and damaging the industrial competitiveness of manufacturing countries like Germany.

Analysts have warned that the German government's 1 trillion ($1.2 trillion) investment plan in infrastructure and defense, part of a broader militarization move across much of the EU, could further weaken the economy.

The German Economic Institute has described the economy as having entered a state of "shock" in recent forecasts, citing weak foreign demand, high interest rates, and a prolonged energy crisis.