Economic Headwinds: Germany Faces Stagnation Amid US Tariff Impact

Germany's economy faces potential stagnation in 2025 following two years of contraction. Economic think tanks highlight the dimension of US tariffs as a significant factor impacting growth, as well as uncertainty in trade policy. Germany aims to revitalize its economy under prospective new leadership.

Germany's economy is projected to stagnate in 2025 after experiencing two consecutive years of decline, according to leading economic think tanks. Their latest forecast on Thursday highlights US tariffs as a major factor holding back Europe's largest economy.

The economists now suggest minimal growth of just 0.1% this year, a drop from their previous projection of 0.8% made in September, with modest growth of 1.3% anticipated in 2026. The unpredictability of US trade policy under former President Trump's administration casts a shadow over these forecasts.

The report notes that tariffs on key imports – aluminum, steel, and vehicles – will likely shave off 0.1 percentage points from Germany's growth over the next two years. President Trump's broad-spectrum tariffs, though temporarily paused, could potentially have an even greater negative impact. As Germany prepares for a new government under Friedrich Merz, efforts to rejuvenate the economy are expected to be a priority.

(With inputs from agencies.)