Germany's economy has contracted for over two years, with a modest prospect of recovery in 2025. The shadow economy has significantly increased, accounting for over 11% of total economic output in 2024, amounting to 482 billion euros. Friedrich Schneider predicts a further rise to 511 billion euros in 2025. Schneider notes that undeclared work, while legal, bypasses taxes and labor laws. The construction, hospitality, and cleaning sectors are particularly affected. Declining tax morale and perceived inadequate state services drive the increase in undeclared labor activities.
The volume of undeclared work in Germany reached a total of 482 billion euros in 2024, exceeding the entire government budget, marking a significant increase in economic activity off-the-books.
Friedrich Schneider highlights that undeclared activities like car repairs and cleaning are legal, yet they often bypass tax obligations and social contributions, reflecting wider issues in labor regulation.
Germany's shadow economy has grown to between 11% and 12% of its GDP, indicating a moderate presence of undeclared work compared to other industrialized nations, with significant variances seen in Romania and Greece.
The rise in undeclared work correlates with declining tax morale, attributed to perceptions of inadequate state services, further motivating individuals to engage in off-the-books economic activities.
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