Germany‘s labour market continued to weaken as 2025 drew to a close, with December seeing the highest December unemployment level since 2010.
In December 2025, the number of unemployed reached 2.9 million, the data showed, with the unemployment rate reaching 6.3%, data showed.
According to ING, these figures are part of a broader trend that has been unfolding in Germany over an extended period, with German unemployment numbers increasing by around 500,000 people over the past four years.
‘Gradual worsening’
“This gradual worsening reflects textbook economics: with the economy effectively stagnating for more than five years and industry facing severe structural challenges, a deterioration in the labour market was inevitable,” commented Carsten Brzeski, global head of macro at ING.
As Brzeski noted, the situation in the German labour market is expected to get worse before it gets better, with 2026 likely to see a further weakening, at least in the short term.
“While more experimental indicators based on job sites suggest a stabilisation, more traditional forward-looking indicators, such as the Ifo and the federal labour agency’s own employment expectations indicators, continue to move downward,” he commented.
“Add to that ongoing announcements of potential cost-cutting measures across the automotive and other industries, and the continuing increase in bankruptcies, and it appears that conditions will first worsen before they improve. If we are right and the cyclical recovery of the German economy unfolds over the coming months, the labour market should stabilise by mid-year.”
Effect on retail sales
Concerns about the labour market have also contributed to a “broader sense of sombreness” in the economy, weighing on private consumption, Brzeski added, adding that while recent data indicated that German retail sales were up 2.4% last year, this was largely driven by a surge in spend at the start of the year.
“Since the second quarter, private consumption in Germany has again been sluggish, and consumer confidence at the end of 2025 dropped to the lowest level in almost two years,” he commented.
“What is striking, however, is that for the full year 2025, real wage growth should have been close to 3%, and the savings rate has nearly returned to pre-pandemic levels. It appears that any excess money is currently going into real estate, whether through higher rents or mortgage payments.
“Overall, the gradual deterioration of the German labour market is likely to persist, clearly complicating any recovery of private consumption in 2026.” Read more here.
