On the eve of the First World War Germany possessed all the features of an advanced and expanding industrial economy. German trade was on the point of exceeding that of Great Britain. Output had increased at the rate of almost 3 per cent a year for forty years. German industry was highly competitive and was supported by a banking system and educational structure particularly favourable to industrial growth. Economic modernisation was reflected, too, in the changing social structure. Bismarck's Germany in 1871 had been predominantly rural; Germany in 1913 was predominantly, though by no means completely, industrial. The Great War did not reverse the direction taken by the German economy in any permanent way, but it did seriously distort the trajectory of economic development. A combination of territorial losses, particularly the industrial regions of Alsace-Lorraine, Silesia and the Saarland, together with the collapse of German trade and the shortage of capital, contributed to a decline in industrial output in the years 1919–24 to between half and three-quarters of the level of 1913. The costs of war and reconstruction also fuelled a high rate of inflation, which led to the collapse of the German mark in 1923 and the loss of half a century of accumulated savings.

In the years following inflation the economy struggled to regain the achievements of 1913. The revival of industrial output, though it lagged behind that of the rest of Europe and far behind that of the United States, did lead by 1928 to a restoration of the output and trade levels of the pre-war period.