Stay informed with free updates
Simply sign up to the German economy myFT Digest — delivered directly to your inbox.
Germany has revised down its growth forecast to zero for this year, with its export-dependent manufacturing sector set to take a hit from US President Donald Trump’s trade wars.
Thursday’s estimate by the German government compared with its previous prediction of a 0.3 per cent rise in GDP for 2025.
The country’s economy, Europe’s largest, is suffering the most protracted slump in its postwar history. German GDP shrank by 0.2 per cent last year and by 0.3 per cent in 2023.
Friedrich Merz, who is set to be voted into office as German chancellor next month, has vowed to reinvigorate the economy with higher debt-funded spending on infrastructure and defence, as well as tax subsidies for investment and deregulation.
But while many analysts say those plans will boost Germany’s growth in the coming years, Trump’s wide-ranging tariffs pose an immediate problem for the country’s export-heavy economy.
Trump announced 20 per cent “reciprocal” tariffs on the EU this month, but then imposed a 90-day pause, which brought the bloc’s rate down to a universal 10 per cent rate while the two sides negotiate over a final level.
“The German economy is once again facing major challenges due to the unpredictable trade policy of the United States,” said Robert Habeck, the outgoing Green economy minister. “It is therefore in our strong interest that the EU and the US find a solution to the tariff dispute.”
The German government’s downward revision follows a similar move by the IMF, which this week also predicted zero 2025 growth for the country, down from 0.3 per cent.
“The German economy is preparing for turbulence,” Clemens Fuest, head of the Ifo research institute, added on Thursday. He noted that Ifo’s Business Climate Index showed uncertainty for manufacturing companies growing strongly.
The government predicts that Germany’s economic engine will restart next year, growing an estimated 1 per cent thanks to a rebound in corporate capital expenditure.
It added that inflation should decrease to 2 per cent this year, from 2.2 per cent in 2024, and inch down to 1.9 per cent next year. It also said that Washington’s tariffs were likely to have a “dampening effect on inflation” if China diverts exports from the US to European countries.
Habeck highlighted the potential benefits of Merz’s plans to invest up to €1tn but warned the next government needed to tackle structural reforms “quickly and consistently.”
“This will determine whether the German economy receives a boost to its competitiveness or whether the large amount of money is wasted,” he said.
Read the full article here
