Germany Cuts 2025 Growth Forecast to 0.1% Amid US Tariffs

Germany's economic institutions have revised their growth forecast for 2025 down to 0.1%, a significant decrease from the previous prediction of 0.8% made in September 2024. This adjustment comes as the country faces a challenging economic environment, marked by stagnation and the impact of recent tariffs imposed by the United States.

Germany, the largest economy in Europe, is the only member of the G7 nations that has not experienced economic growth over the past two years. The downward revision to the growth forecast underscores the severity of the economic challenges the country is currently facing. The new forecast does not account for the latest tariffs announced by the United States, which are expected to further strain Germany's export-driven economy.

The economic slowdown in Germany is part of a broader trend of economic stagnation within the G7 nations. The country's reliance on exports makes it particularly vulnerable to global trade tensions and economic policies that affect international trade. The latest forecast also raises concerns about the potential for a prolonged period of economic stagnation, as the prediction for 2026, which is slightly above 1.0%, is still lower than the previous estimate of 1.3%.

In response to the economic slowdown, there is growing pressure on policymakers to implement fiscal stimulus measures. The upcoming election in February has brought renewed focus on the need for economic reforms and stimulus packages. The proposed 5,000 billion euro infrastructure and defense enhancement plan, led by the conservative party and the social democratic party, aims to boost economic growth and address the country's economic challenges. This fiscal plan is expected to improve the economic outlook for 2026 and 2027.

The latest forecast is expected to be officially released this week and will be incorporated into the official economic outlook by the German Ministry of Economy. The new forecast considers the impact of the 25% tariffs on aluminum, steel, and automobiles imposed by the United States but does not account for the additional 20% tariffs on other goods announced last week. The inclusion of these tariffs in future forecasts could lead to further adjustments in the economic outlook, highlighting the ongoing uncertainty and challenges facing the German economy.