The German economy has been shrinking for more than two years, and 2025 offers only a slight glimmer of hope for an economic recovery. Surprisingly, the so-called shadow economy — encompassing all economic activity happening off the books — is surging. So what's behind the fact that the share of undeclared work has jumped to more than 11% of Germany's overall economic output in just one year? According to labor market expert Friedrich Schneider, who calculated this figure, the volume of undeclared work in 2024 was worth a total of €482 billion ($562 billion) — more than the entire government budget, and marking the highest level in nearly a decade. For 2025, the economist from Johannes Kepler University in Linz, Austria, projects a further rise to €511 billion, an increase of 6.1%. Schneider has been studying the phenomenon for over 40 years, and prefers to call it "shadow economy" rather than illegal work, he told DW. "[Undeclared] economic activities, like repairing a car or cleaning, are legal but they're carried out without paying taxes or social contributions," he said, adding that legal requirements such as minimum wage laws or working time limits are often ignored in the shadow economy. A group of workers on a construction site in Germany.A group of workers on a construction site in Germany. The construction sector is especially prone to undeclared work, as well as hospitality and cleaning servicesImage: picture-alliance/dpa/Winfried Rothermel With a shadow economy share between 11% and 12% of gross domestic product (GDP), Germany ranks in the middle compared to other industrialized countries, according to Schneider, with Romania topping the list with around 30%, and Greece coming in second at about 22%. When calculating shadow economy output, Schneider compares the amount of cash in circulation with official economic output figures.