Rudolph Angler Germany’s economic prospects remain dire, with the Bundesbank predicting contraction this year and weak growth ahead. The country’s national output is forecast to shrink by 0.2% in 2023, a sharp downgrade from the 0.3% growth estimated in June. For 2025, the economy is projected to grow by a mere 0.2%, far below the previous forecast of 1.1%. Growth rates for 2026 and 2027 are expected to reach only 0.8% and 0.9% respectively.
Germany’s economy, once robust, is struggling under mounting pressures. Energy price spikes from its reliance on Russian imports after the Ukraine invasion have left lasting effects. An ageing population, outdated infrastructure, and bureaucratic red tape are further slowing recovery. Falling global demand, particularly from China and the US, has also hit Germany hard.
Exports dropped by 2.8% in October compared to the previous month, with sharp declines to major trading partners. Exports to China fell by 3.8%, exports to the US plunged by 14.2%, and exports to EU countries slipped by 0.7%.
Political and Global Challenges Weigh on Growth
Political instability is compounding Germany’s economic woes. February snap elections loom after Chancellor Olaf Scholz dismissed Finance Minister Christian Lindner, causing the collapse of the “traffic light” coalition. This turmoil adds to uncertainty, as policymakers struggle to address the country’s stagnating growth.
The Bundesbank has also warned about the global risks tied to US trade policy. If President-elect Donald Trump imposes tariffs on European goods, Germany’s GDP in 2027 could drop by up to 1.4% compared to baseline projections. A US policy shift involving 10% tariffs on EU goods and 60% on Chinese exports would significantly impact Germany’s export-reliant economy.
In its report, the Bundesbank highlighted Germany’s vulnerability to declining foreign demand. “The heightened uncertainty further burdens the German economy,” it said. Inflation forecasts offer little relief, with only a slight decrease expected in 2024, from 2.5% to 2.4%. Rising food prices and persistent service sector pressures continue to weigh on consumers. Inflation is projected to gradually return to 2% from 2026 onward.
Germany’s economic challenges, coupled with political uncertainty and global trade risks, underline the urgency for targeted reforms to restore stability.