Economic Growth Forecast Lowered to Zero
The German government has lowered its forecast of economic growth to zero, citing the effects of US President Donald Trump’s trade policy. Outgoing Minister of Economy Robert Habeck stated that the primary reason for this forecast is Donald Trump’s trade policy and its effects on Germany.
Impact of Trade Policy on Germany’s Economy
After two years of recession in 2023 and 2024, there is little hope for the largest economy in Europe. The German economy closed by 0.3% in 2023 and 0.2% in 2024. The European Union negotiated with Washington to avoid a further 20% US tariffs for goods from the block. The United States is Germany’s largest trading partner, and Habeck said Trump’s tariffs affect the German economy harder than other nations.
How US Tariffs Affect Germany
US trade policy, which threatens and imposes tariffs, has a direct impact on the German economy, which is very export-oriented. The US tariffs, with a ceiling of 10% for all imports and 25% taxes for cars, aluminum, and steel, are expected to hit the most important export sectors in Germany, such as automobiles and pharmaceutical industries. Additionally, Germany faces increasingly violent Chinese competition in key sectors like automobiles and machines.
Warning of a "Light Recession"
The President of the Bundesbank, Joachim Nagel, warned of the possibility of a "light recession" and could not rule out this scenario for 2025. He added that the time of uncertainty is not yet over. Germany’s economy has been involved in an economic crisis in recent years, with inflation increasing after the measures to contain the Coronavirus pandemic, followed by the Russian invasion of Ukraine.
Hope for Revival
Habeck has expressed hope that a new spending package worth many hundred billion euros could help revive the economy. The forecast of the government is more optimistic than that of the German Central Bank. However, the economy still faces challenges, including the impact of US trade policy and Chinese competition. The German government is working to address these challenges and revive the economy.
