XINHUA – Germany’s economy is projected to grow by 0.1 per cent in 2025, according to a joint forecast released by the country’s leading economic think-tanks, marking a sharp downgrade from the previous forecast of 0.8 per cent issued in autumn 2024.
The revision is attributed to mounting headwinds from newly imposed United States (US) tariffs and continued domestic policy uncertainty, reported Xinhua.
“The German economy remains in crisis,” the report stated, highlighting significant shifts in both domestic and international policy since the start of this year.
A key concern is the 25-per cent tariffs on car imports imposed by US President Donald Trump, which came into force on April 3. The move poses a major threat to Germany’s export-reliant automotive industry. In 2024, Europe’s largest economy exported around 3.4 million new vehicles, with the US accounting for the largest share – 13.1 per cent.
The report warned that the US tariff policy, particularly the car duties, would dampen growth momentum more obviously in summer, reducing gross domestic product (GDP) by 0.1 per cent in both 2025 and 2026.
It added that additional tariffs recently introduced by Washington have not yet been factored into the projection and could further delay recovery more severely.
To counter economic stagnation and address infrastructure deficits, Germany has amended its basic law to pave the way for higher public borrowing. The resulting expansionary fiscal policy is expected to be one of the few positive factors to support the economy, with GDP forecast to grow by 1.3 per cent in 2026.
Still, that figure is 0.8 percentage points below the previous forecast.
However, the report cautions that fiscal stimulus measures alone will not be enough.
Germany is grappling not only with cyclical weakness but also with deep-rooted structural challenges.
Head of economic research at the RWI-Leibniz Institute for Economic Research Torsten Schmidt, one of the five institutes behind the report, pointed to a shortage of skilled labour and high bureaucratic hurdles as key structural issues, emphasising the urgent need for reforms to strengthen the country’s growth potential.
