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Germany Faces Prolonged Weak Growth as US Tariffs Bite

Bundesbank forecasts stagnation in 2025 followed by 0.7 percent expansion in 2026 with fiscal stimulus not expected to take effect until late 2027

A double decker bus passes the skyline with its dominating banking district in Frankfurt, Germany, November 8, 2023. REUTERS/Kai Pfaffenbach
People visit a Christmas market in Amsterdam, Netherlands December 16, 2022. REUTERS/Piroschka van de Wouw/File Photo
Volkswagen cars waiting last month to be put aboard a ship for export near the company's factory in Emden, northwestern Germany

Overview

  • Bundesbank predicts Germany’s GDP will remain flat in 2025 and grow just 0.7 percent in 2026 under its baseline scenario, missing government and EU projections.
  • The central bank warns that full implementation of US tariffs could push output down 0.5 percent this year and 0.2 percent in 2026 before a 1 percent rebound in 2027.
  • Exports are set to fall sharply in 2025 due to trade policy uncertainty, with only a modest recovery next year, weighing on industrial investment and wage growth.
  • Planned increases in infrastructure and defence spending, supported by relaxed fiscal rules, are projected to lift growth only by the end of 2027.
  • Headline inflation is expected to ease to 2.2 percent in 2025 and dip below the ECB’s 2 percent target in both 2026 and 2027, reflecting subdued domestic demand.