Germany faces a difficult year ahead as the economic engine of Europe. Experts argue the contraction is likely to last 2 years and expect stagnation in 2025. Additionally, the potential consequences of US tariffs bring a somber outlook on the future of the state.
A Sharp Downgrade: Minimal Growth
Germany’s think tanks are predicting a bleak forecast as awareness of stagnation in a developing economy spreads. Five of Germany’s major economic institutes recently revised their expectations, anticipating growth of a mere 0.1% for the German economy in 2025. This figure has been significantly lowered from the previously predicted 0.8% growth in September. The growth outlook for 2026 is marginally better at 1.3%.
Economic Deterioration: The Trump Factor
As Trump still holds power, his hostile trade policies are projected to be the leading contributor to worsening economic prospects. The economists highlight the detrimental effect of US tariffs on aluminum, steel, and vehicle imports. According to their report, these tariffs are estimated to result in 0.1% slower growth for the German economy in 2025 and 2026.
Deeper Threats: “Sweeping Tariffs” & Double Trouble
Economists have been critical of Trump’s recent set of tariffs, with some predicting more dire consequences. Their analysis suggests that damage to the German economy stemming from the trade losses might surge to even greater extremes. It is apparent that the entirety of the nation is deeply conflicted with the magnitude of these new tariffs.
Staggering Limitations: Calculating the Economic Impact
Cohen proposes analysts have made drastic calculations in attempting to measure the magnitude of Trump’s tariffs. Cohen argues, “There are no ranges for empirical estimates. Thus the actual impact remains elusive, which means there exist no bounds within which the impact can operate. It could certainly be a very large endeavor for a myriad of economists and policy wonks.” Without a doubt, the world is in uncharted territory when it comes to calculating the political disturbance in the economy.
New Government: Time and Economy Are Not Allies
The German prospective new government under the coalition led by Friedrich Merz must recover from the economic shock as rapidly as possible. During the Wednesday briefing, the coalition highlighted that their plans focus on salvaging the economic obstacle course the country currently faces. Even so, the global shifts in the market dynamics coupled with the perplexing U.S. tariffs will play a pivotal role in determining the outcome.
A Call for Action: Protecting Economic Interests
Germany is faced with an amalgamation of sluggish growth and a potential recession worsened by prospective U.S. tariffs, both posing dire strategic concerns. As with all forecasts, this one, too, requires responding to the ever-changing environment. Additionally, the newly elected German government will have to be proactive and simultaneously manage these challenges to maintain future economic expansion.
