Germany's shadow economy grows to over €500 billion

Germany's shadow economy in 2025 reached its highest level in more than a decade amid the country's economic struggles, according to a new study.

Financial scientist Friedrich Schneider from the University of Linz and the Institute for Applied Economic Research in Tübingen estimates the size of the shadow economy at €510 billion ($606 billion).

In 2026, it is expected to grow by 5.5% to €538 billion. The main reasons for this are the low growth of the German economy and rising unemployment.

"This reduces the income from declared employment and creates an incentive for undeclared or illegal activities." This alone will cause the shadow economy to grow by €9.5 billion in price-adjusted terms by 2026.

The increase in the minimum wage at the beginning of the year and the higher earnings limit for marginal employment (mini-jobs) are also causing the shadow economy to grow – by €2.4 billion in real terms, according to the study.

On the other hand, the reduced VAT in the hospitality industry reduces the incentive to operate outside the tax system.

The authors define the shadow economy as the sum of undeclared work and income from illegal activities, including certain forms of gambling and prostitution.

According to the study, Germany's ratio of the shadow economy to economic output in 2026 is just below the average of 20 major industrialized countries.

However, the shadow economy in Germany has grown by 2.4 percentage points since 2021, three times as much as the average of all countries analysed (plus 0.8 percentage points).