Germany, the eurozone’s largest economy, faces grim forecasts amid President-elect Donald Trump’s return to the White House. The Bundesbank predicts a 0.2% contraction in Germany’s economy this year, revising its earlier projection of 0.3% growth from June. Growth in 2025 is expected to be just 0.2%, far below the previously forecasted 1.1%. The Bundesbank anticipates modest recoveries of 0.8% and 0.9% for 2026 and 2027.
Germany’s economic struggles are more pronounced than in other nations burdened by high borrowing costs. The country’s former dependence on Russian energy worsened its situation after energy prices spiked following Russia’s invasion of Ukraine. Challenges like an aging population, aging infrastructure, and regulatory hurdles hamper recovery efforts. A slowdown in China, a vital market for German exports, has also significantly impacted growth.
Declining Exports and Rising Political Tensions
Germany’s exports have fallen sharply, with October’s figures showing a 2.8% drop compared to the previous month. Exports to China decreased by 3.8%, to the US by 14.2%, and to EU countries by 0.7%. Political instability adds further strain. Snap elections are scheduled for February after Chancellor Olaf Scholz dismissed Finance Minister Christian Lindner, citing budget disputes that led to the collapse of the “traffic light” coalition.
The Bundesbank warns that Trump’s proposed tariffs could further harm Germany’s economy. A scenario involving 10% US tariffs on European goods and a 60% levy on Chinese exports could reduce Germany’s GDP forecast for 2027 by 1.3%-1.4%. The Bundesbank highlighted Germany’s reliance on exports as a critical vulnerability in this scenario, predicting significant damage from a shift in US trade policy.
On inflation, the Bundesbank expects a slight decline next year, from 2.5% to 2.4%, due to rising food prices and lingering service costs. By 2026, inflation is projected to gradually return to the 2% target. The German economy remains under pressure, with both domestic and international challenges impeding recovery.