Germany’s economy is predicted to shrink by 0.2% in 2024 and barely grow in 2025, the Bundesbank reported. The central bank downgraded its previous forecast of 0.3% growth for 2024 and revised 2025 growth to 0.2%, down from 1.1%. For 2026 and 2027, the Bundesbank expects modest growth of 0.8% and 0.9%, respectively.
Germany’s economic struggles are amplified by global uncertainties, including President-elect Donald Trump’s return to the White House. Policies such as potential US tariffs could further dampen growth. The Bundesbank warned that these factors could cause Germany’s GDP in 2027 to fall 1.3%-1.4% below its baseline forecast.
Challenges Plague Europe’s Largest Economy
Germany continues to suffer disproportionately due to its reliance on Russian energy, which spiked after the Ukraine invasion. Domestic challenges like an ageing population, outdated infrastructure, and excessive bureaucracy further hinder recovery.
Global factors also weigh heavily. A slowdown in China, a key market for German exports, has significantly impacted trade. In October, German exports dropped 2.8% compared to the previous month. Exports to China fell 3.8%, US exports plunged 14.2%, and EU exports dipped by 0.7%.
The Bundesbank also noted persistent inflationary pressures, predicting a slight decrease in inflation next year from 2.5% to 2.4%. Rising food prices and slow declines in service costs contribute to the challenge. Inflation is expected to stabilize at 2% from 2026 onwards.
Political Instability Worsens Economic Outlook
Political turmoil adds to Germany’s economic woes. Snap elections were called after Chancellor Olaf Scholz dismissed Finance Minister Christian Lindner in a budget dispute, collapsing the ‘traffic light’ coalition.
International politics could exacerbate Germany’s problems. The Bundesbank warned that US tariffs of 10% on European goods and 60% on Chinese exports could significantly harm Germany’s export-driven economy. Reduced foreign demand and increased global trade uncertainty would create additional burdens.
Germany’s reliance on exports leaves it particularly vulnerable to external shocks. The Bundesbank emphasized that restrictive US trade policies could trigger global trade losses, further straining Germany’s fragile economy.
