Germany is thriving and leading the recovery in Europe. But the growing German economy is going to be thwarted by changing demographics -- the country is predicted to be among the worst affected in Europe when it comes to anticipating skills shortages thanks to a declining working population.

New research by the Federal Agency for Labour (BA) reveals that due to an aging population, the number of people in Germany who are able to carry out work will be reduced by about 6.5 million by the year 2025. As a result, Germany is going to be facing a looming skills shortage.

The German government has responded by producing a so-called 'Ten Points Action Plan' on how to deal with this development, including reducing the number of school drop-outs, extending the retirement age and encouraging more women to join the workforce.

Economists agree that Germany's export-driven economy, which relies on skilled engineers to develop its high-end manufactured goods, will be gradually eroded in years to come by a dearth of qualified professionals. "The skills shortage, and not unemployment, will in the coming years be the key problem for the German job market," says Economy Minister Rainer Brüderle.

In addition to the initiatives aimed at getting more Germans into the job market, Brüderle is planning a major recruitment drive to attract skilled foreign workers. Of the effort, which among other actions  encourages German firms to pay cash incentives to lure foreign workers, Brüderle says, "The question of how Germany becomes lastingly attractive to skilled migrants is right at the top of my agenda.

"At the same time, the government also wants to tap a pool of foreigners unable to practice their professions because their credentials are not known. Education Minister Annette Schavan told a German financial newspaper there are some 300,000 foreign residents in Germany with skills that they cannot use because the qualifications from their homelands are not recognized.

She said the government would like to pass a law this year to speed up the authentication process for foreigners. Many with medical, engineering and other degrees often work in jobs requiring lesser skills because their degrees are not identified.