Germany's Economic Malaise Linked to 'China Shock' in New Report
Quick Look
A report by the Centre for European Reform attributes Germany's economic struggles to the 'China shock', citing a 40% decline in exports to China since 2021 and a reversal in capital goods trade.
AI-generated summary
Why It Matters
Germany has been undergoing deregulation efforts to boost its economy.
Much soul-searching has been under way in Berlin over recent years, with the German government focusing on deregulation in an effort to kick-start a sputtering economy. According to the report from influential think tank the Centre for European Reform, the “China shock is now the most important cause of Germany’s malaise” – even if “it is the one Berlin remains least willing to confront”. The report’s authors, economists Sander Tordoir and Brad Setser, described the effect on Germany as Phantomschmerz, or phantom limb – “a pain felt where something vital has already been lost”. “That missing limb is export demand, chopped off by China’s profound pressure on Germany’s industrial base,” they wrote. The report found that Germany’s exports to China as a share of GDP have fallen by more than 40 per cent since the 2021 peak and that, since mid-2025, Germany has been buying more capital goods from China than vice versa – a remarkable turnaround for Europe’s industrial engine.
What to Watch
AI outlook — possibilities, not facts
Germany will implement targeted subsidies for affected industries within the next 6 months.
Likely · Within months
Open Questions
- What specific deregulation measures will Germany implement?
- How will the EU respond to the trade imbalance?
