German Economy Faces Storm: New Tariffs Threaten Recovery

German economic institutes have reduced their 2023 growth forecast to 0.1%, taking into account initial U.S. tariffs on steel, aluminium, and cars. U.S. tariffs have severely impacted exports, shaking market confidence. A new German coalition government aims to stimulate growth with economic reforms.

On Thursday, German economic institutes slashed their growth projections for 2023 from 0.8% to a mere 0.1%, largely attributing the downgrade to the United States' initial tariffs on steel, aluminium, and cars. The news corroborates an earlier report by Reuters and highlights the ongoing struggle of Germany's export-reliant economy, which remains the only G7 nation to have contracted for two consecutive years.

German Economy Minister Robert Habeck expressed significant concern over the possible repercussions of additional U.S. tariffs announced by President Donald Trump. Although the U.S. suspended these tariffs, their announcement alone has already wreaked havoc on the European market. "The introduction of these tariffs would be catastrophic, particularly for the U.S.," remarked Habeck, indicating that the German economy could potentially recede for a third consecutive year—the first instance in post-World War II history.

The German government's reaction to this tumultuous trade environment is marked by economic and tax reforms, designed to rejuvenate Europe's largest economy. Despite the uncertain landscape, forecasts suggest that Germany might see a growth rate of 1.3% by 2026. However, the potential impact on economic stability and employment remains a concern, with unemployment expected to edge up slightly to 6.3% this year.

(With inputs from agencies.)