Germany's economy is headed toward a period of extremely modest growth through the middle of the century, and even that limited expansion will only materialize if businesses embrace digital technology, artificial intelligence, and other innovations far more aggressively than they have so far. This is the central finding of a new study by the Prognos Research Institute, commissioned by the Bavarian Industry Association (vbw), which warns that without a genuine leap in technological adoption, the German economy would contract over the coming decades instead of expanding.
The study's core argument rests on a simple but consequential demographic reality: persistently low birth rates are steadily reducing the number of people available to work in Germany. At the same time, the country's manufacturing sector has already reached a high degree of automation, leaving little room for further productivity gains through traditional means.
As a result, the researchers conclude that technological progress is becoming almost the only remaining engine capable of driving economic expansion. In their own words, the researchers state plainly that without continued technical advancement, the German economy would shrink over the coming decades rather than grow.
According to Prognos, Germany's overall economic output is expected to rise by an average of just 0.9 percent per year through 2045. This figure, however, rests on two underlying assumptions. First, companies across the economy must successfully accelerate their adoption of digital tools, AI systems, and other innovative technologies. Second, policymakers must make at least partial progress on what the study calls the country's central structural challenges.
Among the structural challenges the study highlights, encouraging greater workforce participation stands out as particularly urgent. The researchers argue that Germany needs stronger incentives to draw more women and retirees into the labor market. Such measures, the study notes, would not reverse the overall decline in the number of available workers, but they could meaningfully slow its pace.
Beyond the immediate growth outlook, the researchers anticipate a sweeping transformation in how Germany's economy is organized. Production, employment patterns, and overall economic activity are expected to shift substantially across different industries, occupations, and service sectors in the years ahead.
The study points to five forces driving this restructuring: ongoing digitalization, the shift toward a lower-carbon economy, demographic change, geopolitical developments, and a changing international division of labor. Taken together, these trends are expected to reshape not only what Germany produces but also the nature of the jobs available to its workforce.
The Prognos study also situates Germany's challenges within a broader global context, projecting that economic activity will continue shifting toward emerging markets. By 2045, these economies could account for roughly half of global gross domestic product. Countries such as India and Indonesia, along with several economies across Africa, are expected to benefit from relatively young populations, growing infrastructure investment, and deeper integration of rural areas into national economies, positioning them for an expanded role in global trade.
China, meanwhile, is expected to continue slowing as its population ages and its economy undergoes structural adjustment, yet it is still projected to remain one of the world's dominant economic powers. The study forecasts that China's real gross domestic product will overtake that of the European Union later this decade.
The United States is projected to hold on to a narrow lead over China, reinforcing the emergence of a bipolar global economy centered on these two nations. Within this configuration, the European Union is expected to retain significance as an economic bloc, though its overall weight is projected to fall short of matching either the United States or China.
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