Can Germany overhaul its economy before AfD grows stronger?

Conflicts, rising costs and Chinese competition are testing Germany's economic model like never before. Which new sectors could revive growth and contain the far-right AfD, whose support has grown larger than ever?

Chancellor Friedrich Merz's government set out a high-tech agenda focusing on six priority sectors, including artificial intelligence, quantum computing and climate-neutral mobilityImage: NEURA Robotics/pexels.com/@eren-liAdvertisementGermany's export-led economic model faces unprecedented strain just as support for the far-right Alternative for Germany (AfD) party reaches a new peak. 

Chinese rivals are steadily eroding the market share of major German industrial players, while persistently high energy prices, elevated labor costs and excessive red tape are adding to the structural crisis.

After two years of contraction, real GDP edged up only 0.2% last year, according to the Federal Statistical Office, Destatis. Exports to China fell 9.7% in 2025, withGerman vehicle and part shipments plunging by a third.

While there are signs the German economy is turning the corner, the government's latest forecast of 1.3% growth in 2026 is still modest compared with the pre-COVID boom years.

The AfD is currently polling ahead of all other political parties in Germany. The country's many economic challenges have been a major factor in the right-wing populists' rise.

Germany's domestic intelligence agency sees reliable indications that the AfD is right-wing extremist in its entirety.

The party has vowed to put Germany back on a growth path by ending the transition to renewable energies, lowering taxes and renegotiating European Union treaties, while also reforming welfare and sharply restricting immigration.

As Chancellor Friedrich Merz's coalition searches for a fresh growth strategy to fend off the rise in populist politics, the government has set out its high-tech agenda focusing on six priority sectors.

These are artificial intelligence (AI), quantum computing, microelectronics, biotechnology, clean energy (including nuclear fusion) and climate-neutral mobility. 

Irene Bertschek, head of the Digital Economy research unit at the Leibniz Center for European Economic Research (ZEW), argues that Germany's research in these "key enabling technologies is very strong, particularly in the area of climate-neutral technologies."

Yet, the results are often commercialized abroad, Bertschek told DW, with the United States leading in AI and China closing the gap quickly.