German Chancellor Addresses Severe Strain On Economy, Sets Recovery As 2026 Priority

(MENAFN- IANS) Berlin, Jan 6 (IANS) German Chancellor Friedrich Merz said restoring economic growth will be the government's main priority in 2026, after acknowledging that earlier steps have not been enough to strengthen Germany's competitiveness.

In a letter sent at the start of the year to members of his governing coalition, Merz described the economic outlook as "very critical in some areas," according to a document cited by German news agency dpa.

In 2026, Germany would need to focus on decisive political and legislative action to substantially improve conditions for businesses, Merz wrote, stressing that only then could the economy return to growth, reports Xinhua news agency.

Germany's economy shrank in both 2023 and 2024. Winter forecasts released in December 2025 by several major German economic institutes projected growth of just 0.1 per cent in 2025, pointing to weakening external demand, including a marked fall in exports to the United States.

Analysts said Germany's recovery had long faced headwinds from high energy costs, weak global demand and slow structural reform, with US tariff hikes in 2025 adding further strain on exporters.

Since taking office in May 2025, Merz has pledged to revive Europe's largest economy through large-scale public spending and increased investment in defence and infrastructure. His government has acknowledged that recovery will take time and has rolled out tax cuts and other reforms, though business groups say the pace of change remains too slow.

Earlier, during his New Year's address, the German Chancellor said Europe must strongly assert its own interests in an increasingly volatile world.

In the address, Merz characterised the current global situation as an "epochal shift," marked by geopolitical upheavals, a return to protectionism, and changing transatlantic dynamics.

"Our partnership with the United States of America, which has long been the reliable guarantor of our security, is changing," he said. "For us Europeans, this means that we must defend and assert our interests much more strongly by ourselves."

Addressing the security situation, Merz said that Germany must improve its deterrence and defence capability to ensure long-term peace.

In terms of the economy, he pledged that his government, formed after the federal elections in February 2025, would focus on restoring Germany's competitiveness by cutting red tape and fostering technological innovation.

"We are not the victims of extraneous circumstances. We are not at the mercy of great powers," Merz said, stressing that 2026 can be a decisive year for Germany and Europe.

"It can be a year in which Germany and Europe, with new strength, reconnect with decades of peace, freedom and prosperity," he said.

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