Germany's Economic Hurdles: Tariffs, Stagnation, and a Path to Recovery
Germany's economic forecast indicates a 0.3% decline in exports for 2025 due to weakening competitiveness and geopolitical tensions. The economy shows minimal growth amidst political instability and potential U.S. tariffs. A recovery is anticipated in 2026, although fiscal policy challenges persist, impacting economic progress.
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German exports are projected to decrease by 0.3% in 2025, stemming from reduced competitiveness and mounting geopolitical tensions, according to Wednesday's government economic report. European entities brace for potential tariffs from U.S. President Donald Trump's administration, amidst a critical election set for February 23 in Germany.
This largest European economy anticipates a meager 0.3% growth expectancy this year, revising down from 1.1%, reflecting ongoing struggle from two successive contraction years. Economy Minister Robert Habeck remarked, "Germany is stuck in stagnation," signaling delayed growth that has been long-awaited for.
Looking forward to 2026, growth of about 1.1% is projected. Habeck attributes the 2025 forecast reduction to unfulfilled growth initiatives due to political disruptions, electoral uncertainties, and geopolitical risks linked to Trump's potential reelection.
The BDI industry association has warned that Trump's tariff threats could shrink the German economy, which is reliant on exports, by nearly 0.5% in 2025. Minister Habeck underscores the detrimental effects of tariffs, stressing their harm to investments and increased production costs, which affect the export-reliant nation overall.
Further, Habeck pointed out Germany's constrained fiscal measures compared to other G7 nations, limiting growth prospects. He advocated for reforming the debt brake to allow more fiscal flexibility instead of removing it, as inflation is expected to drop below the ECB's 2% target by 2026, while unemployment may increase to 6.3% from 6.0%.
(With inputs from agencies.)