The German government has significantly lowered its economic forecast for 2025 and now expects zero growth. According to the spring forecast announced by acting Economy Minister Robert Habeck, Europe's largest economy may stagnate or even contract for the third consecutive year. Previous declines were recorded in 2023 and 2024.
This revision represents a major change from the official estimate of autumn 2024, which predicted growth of 1.1 %. Habeck cited "Donald Trump's trade policies" as the main reason for the revision, saying that threats and the introduction of tariffs by the US have significantly increased global economic uncertainty and weakened growth prospects.
Habeck stressed that these unpredictable trade moves once again pose a serious challenge to the export-oriented German economy. He pointed to Germany's deep integration into global supply chains and its openness to international trade.
Concerns are shared by Germany's leading economic institutions, which also cut their growth forecasts for 2025 to almost zero in a joint report this month.
The report identified US tariffs as a major obstacle, in particular a 25 % tariff on car imports that could seriously weaken the German car industry. Estimates speak of a possible reduction in Germany's GDP of 0.1 % in both 2025 and 2026.
Calculations by the German Economic Institute (IW) further suggest that a so-called "reciprocal" US tariff of 20 % on EU imports could deprive Germany of up to €290 billion (US$330 billion) worth of economic output over four years, which would mean an average annual GDP loss of 1.6 % by 2028.
At the domestic level, Habeck noted that economic conditions were beginning to stabilise. The decline in political uncertainty could support a gradual recovery in private consumption, he said. He added that "the new government's fiscal policy decisions may provide a positive impetus, although their effects are likely to be felt in the coming years."
Germany has introduced an expansionary fiscal policy following an amendment to the Basic Law that allows for an increase in public debt, including the creation of a €500 billion infrastructure fund aimed at addressing the long-term investment deficit.
"But money alone won't solve the problem," Habeck warned, referring to persistent structural problems such as a shortage of skilled labour. He called on the future government to address these issues "quickly and decisively".
In its coalition agreement, the incoming federal government has already outlined a set of measures to support the stagnating economy. These include tax cuts for companies, a more flexible labour market and the expansion of renewable energy.
According to the government's forecast, the German economy is expected to grow by 1 percent in 2026.
Xinhua/gnews.com
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