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Germany is looking at a challenging year ahead, with economic stagnation on the horizon even under the most favorable conditions, according to the Bundesbank’s latest assessment. On Friday, they revised their 2025 growth forecast down to a mere 0.1 percent. Moreover, the looming threat of a trade war with the US could potentially plunge Europe’s biggest economy into recession.
The Bundesbank highlighted the potential impact if President-elect Donald Trump follows through on his threat to impose sweeping tariffs on all imports into the US. Such actions could shave off between 0.2 and 0.6 percentage points from Germany’s GDP in the coming year, the report warned.
Their analysis included a scenario where the US enacts a 10 percent tariff on European goods and a hefty 60 percent tariff on Chinese exports, echoing the aggressive trade policies Trump talked about during his campaign.
This grim update, unveiled in the Bundesbank’s December monthly report, paints a much bleaker picture than the one projected in June. At that time, the central bank anticipated a gentle recovery with GDP growth of 1 percent.
However, recent months have led to a stark reassessment, with the bank now dismissing hopes for a significant rebound in consumer spending next year. They also foresee a downturn in corporate investment.
Adding to the woes, Germany’s robust labor market is expected to stumble, with unemployment rates reaching heights unseen in over a decade alongside a slowdown in wage growth.
Joachim Nagel, president of the Bundesbank, commented, “The German economy is facing not just ongoing cyclical headwinds but also deep-seated structural challenges,” pointing to diminished productivity growth and substantial crises within key sectors of Germany’s manufacturing industry.
