Germany, long built on exporting its machines, cars and chemicals, finds that model thinning under Chinese rivals and its own high costs, just as a far-right party climbs to the top of the polls. The Merz government's wager is that the country can reinvent its prosperity around six advanced technologies, from artificial intelligence to fusion energy, in the way postwar Germany once rebuilt itself from ruin. Whether that wager pays depends less on the giants of old industry than on young firms learning to grow, and on whether a nation accustomed to steady engineering can make room for the risk
Can Germany's New Growth Sectors Outpace the AfD's Rise?
Lead at individual choke points
Mark
Why does the article tie startups to the AfD at all?
Mimi
Because economic anxiety is described as a major factor in the party's rise. The government's hope is that new sectors create jobs and ease that anxiety.
Mark
What's the starting point?
Mimi
GDP grew 0.2% last year after two years of contraction, and exports to China fell 9.7%. Vehicle and parts shipments dropped by a third.
Luke
And the 1.3% forecast for this year is the government's own number. It's a projection, not a result.
Mark
The startup figures look strong, though.
Mimi
Over 3,000 founded in the first half of 2026, up 88%, and venture capital up 44% to €5.8 billion.
Luke
Founding counts aren't survival or scale. The €4.1 trillion by 2035 is an estimate from Made for Germany, a group of 147 companies and investors with an interest in the story.
Mark
Why not just rely on the big industrial firms?
Mimi
Falck says newcomers, not the established giants, will mostly conquer these fields.
Luke
That's one expert's view. Nothing here shows these startups can create jobs at the scale lost, or that voters would respond if they did.
Mimi
Fair. Janszky's special zones and defense spending are proposals and plans, not proven outcomes.
Luke
Right, and the article doesn't say whether the AfD's polling would move at all.
Il Polso
- Germany's export engine is sputtering, with China sales down nearly 10% and vehicle shipments collapsing by a third.
- Growth of just 0.2% after two years of contraction has left voters restless while the AfD surges to the top of national polling.
- The government is staking its recovery on six priority sectors, from AI and quantum computing to fusion energy and climate-neutral mobility.
- Startup founding has jumped 88% in the first half of 2026, but American investors are buying up Mittelstand firms and research often leaves Germany for commercialization abroad.
- Proposals for special economic zones and rising defense budgets are being weighed as levers, though EU rules may block the fastest route.
- The decisive test is whether young companies can scale before the next election arrives.
Germany, long built on exporting its machines, cars and chemicals, finds that model thinning under Chinese rivals and its own high costs, just as a far-right party climbs to the top of the polls. The Merz government's wager is that the country can reinvent its prosperity around six advanced technologies, from artificial intelligence to fusion energy, in the way postwar Germany once rebuilt itself from ruin. Whether that wager pays depends less on the giants of old industry than on young firms learning to grow, and on whether a nation accustomed to steady engineering can make room for the risk of experiment.
For decades, Germany's prosperity rested on selling precision machines, automobiles and chemicals to the rest of the world. Now that model is under strain. Exports to China fell 9.7% last year, vehicle shipments dropped by a third, and Chinese competitors are taking market share from familiar industrial names. High energy prices, labor costs and bureaucracy compound the pressure. The economy grew just 0.2% last year after two years of decline, and even the government's forecast of 1.3% for 2026 looks modest beside the years before COVID. That economic frustration is feeding the Alternative for Germany, now leading the polls, even as the domestic intelligence service has labeled the party right-wing extremist in its entirety.
Chancellor Friedrich Merz's coalition is betting on a different future. Its plan centers on six priority sectors: artificial intelligence, quantum computing, microelectronics, biotechnology, clean energy including nuclear fusion, and climate-neutral mobility. German research in these fields is strong, researchers say, but too often the breakthroughs are commercialized in the United States or China. A report from Made for Germany estimates these technologies could attract up to €4.1 trillion in investment by 2035, and economists argue the winners will likely be nimble startups rather than the industrial giants.
There are early signs of change. More than 3,000 startups were founded in the first half of 2026, up 88% year on year, and a third focus on AI. Venture capital rose 44% to €5.8 billion. Some experts want the state to fund the risky gap between research and profit, and to let special economic zones loosen rules for chosen technologies, borrowing the model of Silicon Valley or Shenzhen. Defense spending, expected to approach 2.6% of GDP this year, may also boost dual-use technology. Germany cannot match China on cost, but it can aim to lead at critical points in the chip supply chain. Whether its startups can scale, and whether these bets pay off, will determine if growth arrives before the next election.
Germany's economic model, built on selling machines, cars and chemicals abroad, is under more strain than at any point in recent memory, and it is happening just as the far-right Alternative for Germany reaches its highest polling. The party currently leads every other party in the polls. Economic frustration is widely seen as a major driver of that rise.
The numbers explain some of the mood. After two years of contraction, real GDP grew only 0.2% last year, according to the Federal Statistical Office, Destatis. Exports to China fell 9.7% in 2025, and shipments of German vehicles and parts dropped by a third. Chinese competitors are steadily taking market share from major German industrial names, while high energy prices, elevated labor costs and heavy bureaucracy add to the pressure. The government now forecasts 1.3% growth for 2026. There are signs of a turn, but the figure is modest next to the boom years before COVID.
The AfD's own answer is to end the transition to renewable energy, cut taxes and renegotiate European Union treaties, while reforming welfare and sharply restricting immigration. Germany's domestic intelligence agency says there are reliable indications that the party is right-wing extremist in its entirety.
Chancellor Friedrich Merz's coalition is betting on a different route: a high-tech agenda built around six priority sectors. They are artificial intelligence, quantum computing, microelectronics, biotechnology, clean energy including nuclear fusion, and climate-neutral mobility. Irene Bertschek, who leads the Digital Economy research unit at the ZEW institute, says German research in these enabling technologies is very strong, especially in climate-neutral ones. But she told DW that results are often commercialized abroad, with the United States leading in AI and China closing the gap quickly.
A report released on Monday by Made for Germany, a group of 147 companies and investors, estimates that these and other new technologies could draw up to €4.1 trillion ($4.6 trillion) in investment by 2035. Oliver Falck, director of the ifo Center for the Economics of Innovation and Digital Transformation, says the winners will not mainly be giants like Volkswagen, Siemens or BASF. He expects innovative newcomers, meaning startups, to conquer these fields. He argues that Germany must create conditions for them: proximity to top universities, access to private capital and room to experiment. He also favors state financing for the early "valley of death" between research and commercial viability, when private money is scarce.
There are signs the shift has begun. Data from Deutsche Bank and startupdetector show more than 3,000 startups were founded in Germany in the first half of 2026, up 88% on the same period a year earlier, and a third of them focus on AI. Venture-capital investment rose 44% to €5.8 billion in the same half-year, benefiting firms such as Neura Robotics and the drone makers Stark and Quantum Systems. US investors, meanwhile, are increasingly buying up Mittelstand companies, the small and medium-sized firms, for their specialized technology. Bertschek, who also chairs the government's Commission of Experts for Research and Innovation, wants these firms to put their large stores of production data to work and partner with AI startups to help them grow.
Sven Gabor Janszky, chairman of the Leipzig futures institute 2b AHEAD, proposes special economic zones. For a few chosen technologies, regulation would be lowered, ambitious workers recruited and money poured in, as in Silicon Valley, Shenzhen and Shanghai's Pudong district. He says it echoes conditions that helped rebuild Germany after World War II, and he acknowledges EU rules may stand in the way, though he argues Germany will have to overcome them.
Defense spending is another lever. The International Institute for Strategic Studies expects Germany's defense budget to reach about €120 billion in 2026, roughly 2.6% of GDP, with the government aiming for 3.5% by 2029. Procurement should boost drones, sensors, communications systems and other dual-use technologies.
China's lower energy and labor costs and large subsidies mean Germany will keep facing price disadvantages. Falck says that need not be decisive. Leading the whole semiconductor value chain is unrealistic, he argues, but leading at individual choke points is enough, and Germany is strong as a supplier of equipment for advanced chip fabs and of power semiconductors for AI gigafactories. Whether startups can scale, and whether zones and defense money deliver, will show if growth arrives before the next election.
Citazioni salienti
It will not primarily be the established companies that conquer these new fields, but innovative newcomers — startups.— Oliver Falck, ifo Center for the Economics of Innovation and Digital Transformation
Germany needs special economic zones, with lower regulation, ambitious workers and heavy funding for specific technologies.— Sven Gabor Janszky, 2b AHEAD (paraphrased)
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Economy & Finance