A commentary by our author Klaus Bastian:
The federal government projects economic growth of 1.3 percent for 2026. However, this heralded upturn relies to a significant extent on government spending and additional debt. At the same time, the number of employed persons is shrinking, while the state apparatus demands ever more personnel and funding. In August 2026, there were 235,000 fewer people working in Germany than a year earlier. Industry continues to cut jobs, while the state increases its spending on the back of ever-rising debt. This creates a dangerous imbalance: the economic foundation for funding public services is weakening, yet government obligations continue to grow.
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State apparatus expands while economic base shrinks
As of mid-2025, the public sector employed around 5.5 million people—an increase of 95,100 compared to the previous year. Meanwhile, total employment across the economy fell to 45.41 million people in August 2026. While the additional public-sector positions do include roles in schools, universities, and kindergartens, every permanent new job in the public sector entails personnel costs and future pension obligations. Ultimately, these must be financed through taxes, contributions, or new debt.
Employment trends in the industrial sector are particularly alarming. In the state of Baden-Württemberg alone, 40,600 jobs in the manufacturing sector were lost over the course of the year leading up to the second quarter of 2026. At the same time, 22,200 jobs were created in public and other services, as well as in the education and healthcare sectors—though this category also includes private institutions. The shift remains concerning nonetheless: Germany is losing industrial jobs and, with them, a vital component of its economic strength.
Debt-Financed Economic Growth Is No Substitute for Value Creation
The federal government has raised its growth forecast for 2026 from 0.5 percent to 1.3 percent. However, alongside exports, this recovery is driven largely by government consumption and public investment. While real government consumption is growing strongly, private consumption remains weak. The government itself expects employment to decline by 0.5 percent in 2026, with further job losses projected for 2027 and 2028.
A state can boost its economic output in the short term through additional spending—by awarding construction contracts, hiring staff, and funding new subsidy programs. Yet, when this is financed by borrowing, today’s growth impulses are offset by future payment obligations. Public investment can generate additional value, provided it leads to a sustained increase in productivity. Pure government consumption, by contrast, creates no comparable assets. Consequently, debt-financed growth is far from being a self-sustaining economic upturn.
A Shrinking Workforce Funding an Increasingly Costly State
Demographic trends are further exacerbating this imbalance. In the future, a smaller workforce will have to shoulder the cost of pensions, healthcare, long-term care, and government services. At the same time, rising personnel and social welfare costs are increasing the long-term obligations of public budgets. Productivity gains could offset some of this burden, but that would require the private sector to invest much more heavily and become more competitive—areas where progress has so far been lacking.
The consequences are already becoming apparent in public finances. The Bundesbank expects the government deficit ratio to reach approximately five percent of gross domestic product by 2028. Meanwhile, the debt-to-GDP ratio could rise to around 70 percent. Added to this is the growing interest burden, which places an additional strain on future budgets. Without sufficient economic growth, this trajectory leads—in the long run—to rising debt, higher levies, or painful spending cuts. A state cannot indefinitely redistribute more wealth than its economic output allows.
The Federal Government is financing an upturn that is not self-sustaining
A look at the coming years is particularly revealing. The Federal Government projects economic growth of just 1.1 percent for 2027, and a mere 0.6 percent for 2028. At the same time, employment levels are expected to decline further. Consequently, state-led growth stimuli have so far failed to prevent a sustained reduction in employment; the ifo Institute also confirms that the industrial and commercial sectors intend to continue cutting jobs.
Germany thus faces the risk of an economic cycle characterized by ever-rising costs. The private sector is investing too little, while the state compensates for the lack of demand through additional spending. While this spending boosts gross domestic product, it simultaneously increases financing requirements. If the private sector remains weak, reliance on further state stimulus grows. The apparent upturn then requires constant new borrowing to avoid collapsing once again.
Without a strong private sector, the expanding state apparatus will become unaffordable
An efficient administration and functioning public services are indispensable. However, the state cannot continue to expand indefinitely while the number of employed people falls and industrial jobs disappear. Ultimately, its funding depends on a productive economy and sufficient tax revenue. If this foundation does not grow accordingly, the need for financial adjustment inevitably rises. Policymakers may be able to defer this conflict by taking on more debt, but they cannot resolve it permanently.
Germany’s real problem, therefore, is not a lack of growth on paper, but the lack of sustainability of that growth. Ever-increasing government spending is no substitute for competitive companies, additional investment, and productive jobs. A larger state apparatus does not make a shrinking employment base more productive; instead, it drives up permanent expenditure and reliance on state funding. An upturn that cannot be sustained without constantly incurring new debt is not an economic recovery, but merely a shifting of financial burdens into the future.
Author: Klaus Bastian – Blackout News
Sources: Bundeswirtschaftsministerium (08.10.26) – Destatis (30.09.26) – Statistisches Landesamt BW (29.09.26) – Ifo-Institut (28.10.26) – NZZ (11.10.26) – Handelsblatt (10.10.26)