Protracted Slump in the Job Market Likely to Persist for an Additional Year - Navigation to the job market will require at least a time period of twelve months.
The German labor market, which has been experiencing a negative trend for three years, is expected to show a slow and modest improvement, with a significant recovery not anticipated until 2026.
The spring revival of the German labor market in 2025 has been exceptionally weak, with only slight improvements in unemployment figures and a cautious labor market. Employment subject to social security contributions is growing only modestly and mainly in public service sectors, while manufacturing employment continues to decline.
In May 2025, the unemployment rate decreased slightly to 6.2%, but the number of unemployed people remains about 197,000 higher than a year ago. Employers are cautious about creating new jobs, and the chances of unemployed persons finding work remain historically low.
Overall economic growth forecasts for 2025 are modest, with several institutions projecting GDP growth of around 0.3% to 0.4%. This recovery is expected to be supported by increased public investment and fiscal measures, especially increased government spending on defense and infrastructure starting in 2026.
The Bundesbank expects calendar-adjusted GDP to stagnate in 2025 and projects stronger growth rates of 0.7% in 2026 and 1.2% in 2027. It notes that the labor market slowdown is related to trade uncertainties, particularly due to US tariffs, but a more marked recovery of the economy and labor market is anticipated from 2026 onwards.
Export volumes, an important driver for Germany’s industry and employment, have weakened significantly due to new US tariffs, which has contributed to the slow labor market recovery in 2025. However, if no further escalation in trade conflicts occurs, a moderate economic and labor market improvement is expected next year.
Despite these positive predictions, the labor market is not yet reflecting the improving mood in the economy. The number of job vacancies, as reported by job portal "Indeed", has fallen back to the level of four years ago, showing a decrease of 2.2% compared to May. The willingness of companies to hire remains low, as indicated by Andrea Nahles, chairperson of the Federal Employment Agency.
Labor market researchers predict that the number of unemployed people will exceed three million this summer. In June, the number of unemployed people in Germany fell slightly to 2.914 million, but this is 188,000 more than in June 2024.
In an effort to reduce unemployment and stabilize contributions for unemployment insurance, the president of the Association of Employers has demanded that the Federal Employment Agency focus on its core task of matching job seekers with job vacancies.
The labor shortage remains a concern, with skilled workers remaining scarce in many professions, as mentioned by Andrea Nahles. For the new training year, 396,000 applicants have registered with employment agencies and job centers for a training position, 13,000 more than at the same time last year. However, there are 455,000 registered training positions, 25,000 fewer than last year, as mentioned by State Secretary Leonie Gebers in the Federal Ministry of Labor.
International tensions, such as a blockade of the Strait of Hormuz, could put pressure on the world economy and potentially slow the improvement of the German labor market. The former Federal Minister of Labor believes that the measures of the Federal Government, including tax relief and support for electricity prices, will have an impact on the labor market.
In summary, the German labor market is expected to improve significantly starting in 2026, following a weak and cautious recovery phase in 2025. The recovery will be driven largely by fiscal stimulus and easing trade tensions, leading to increased economic growth and job creation beyond 2025.
In light of the anticipated significant improvement of the German labor market from 2026, it might be beneficial for EC countries to invest in vocational training programs, possibly in collaboration with Germany, to equip the workforce with the necessary skills for the growing job market. Additionally, sports organizations could emphasize vocational training as a valuable pathway for young athletes post-career, helping them transition smoothly into the workforce when their sports careers end.
