Germany’s economic prospects remain grim, with the Bundesbank forecasting contraction this year and minimal growth in 2025. National output is expected to shrink by 0.2% in 2023, a significant downgrade from June’s 0.3% growth prediction. In 2025, the economy is projected to grow by just 0.2%, down from the previously forecasted 1.1%. For 2026 and 2027, the Bundesbank estimates growth of 0.8% and 0.9%, respectively.
Germany’s reliance on Russian energy has left it vulnerable to energy price spikes following the invasion of Ukraine. An ageing population, outdated infrastructure, and restrictive regulations continue to hinder recovery. The country’s global exports fell by 2.8% in October, with exports to China dropping by 3.8% and shipments to the US plummeting by 14.2%. Declining demand from key markets like China and the US further complicates Germany’s recovery efforts.
Political and Global Trade Complications
Political instability has worsened the economic outlook. In February, snap elections were called after the collapse of the ‘traffic light’ coalition. Chancellor Olaf Scholz dismissed Finance Minister Christian Lindner, citing a budgetary dispute. These domestic tensions add to challenges posed by global trade uncertainties.
The Bundesbank warned that President-elect Donald Trump’s proposed tariffs could severely impact Germany’s economy. A scenario involving a 10% tariff on European goods and a 60% levy on Chinese exports could reduce Germany’s GDP forecast for 2027 by 1.3%–1.4%. “Germany’s strong reliance on exports makes it particularly vulnerable,” the Bundesbank report stated. Declining foreign demand and increased uncertainty could significantly burden the economy.
Inflation pressures are also persistent. The Bundesbank predicts inflation will slightly decline from 2.5% in 2024 to 2.4% in 2025, with food prices rising steeply. Inflation is expected to gradually return to 2% starting in 2026. These combined domestic and international pressures create a challenging environment for Germany’s economic recovery.
