German Government Lowers Economic Outlook: Stagnation Looms Under Tariff Shadows

On Thursday, April 24, local time, the German government revised down its economic growth forecast for this year, predicting that its GDP would stagnate after two consecutive years of contraction. Outgoing German Minister of Economy Habeck stated in a press release in Berlin on Thursday that Germany's economic growth rate this year could be zero, lower than the 0.3% growth forecast in January. In October last year, the German government had predicted a 1.1% growth rate for this year. As the largest economy in Europe, Germany has experienced two consecutive years of economic contraction, making it the only G7 member that failed to achieve economic growth in the past two years. Habeck attributed Germany's persistent economic weakness to the uncertainty caused by the trade war initiated by US President Trump, weak export demand, and declining competitiveness. For a long time, Germany has relied on exports to drive economic growth, leading the world in high-end manufacturing sectors such as industrial machinery and luxury cars. Trump's tariff policies have further increased the risks faced by German exports, as he previously imposed a 20% reciprocal tariff on the EU. Germany is the US's largest trading partner in Europe, with a record trade surplus of 70 billion euros with the US in 2024. "Given Germany's deep integration into global supply chains and high degree of openness to foreign trade, the new wave of US trade protectionism could have significant direct and indirect impacts on our economic growth," he said. Habeck called for negotiations to resolve the transatlantic trade dispute. Habeck also noted that since early November last year, Germany has not had a governing majority in parliament, and a new government has yet to be formally formed after the February elections. In the February elections, the conservative Union Party (composed of the CDU and CSU) won the most seats. The German parliament is scheduled to meet on May 6, and if the parties of the new government approve the coalition agreement reached earlier this month, the parliament will vote to elect CDU leader Merz as the new chancellor. Previously, the Union Party had reached a coalition agreement with the center-left Social Democratic Party. Last month, the Union Party, together with the SPD and the Greens, pushed through an investment plan aimed at significantly increasing defense and infrastructure spending in an attempt to boost the economy. However, Habeck stated that the economic boost from these fiscal stimulus measures would not be felt until next year, when growth is expected to reach 1%. German Central Bank President Nagel was more pessimistic, saying in a media interview on Wednesday that if Trump's tariff policies are fully implemented, the German economy could contract for the third consecutive year this year.