Germany slashes 2025 growth forecast to zero amid US tariff fallout

BERLIN -- The German government has sharply downgraded its economic outlook for 2025 and is now projecting zero growth.

According to the spring forecast announced Thursday by acting Economy Minister Robert Habeck, Europe's largest economy could stagnate or contract for a third consecutive year. This follows back-to-back declines in 2023 and 2024.

The latest revision marks a significant shift from the previous official forecast issued in the autumn of 2024, which projected growth of 1.1 percent. Habeck attributed the downgrade primarily to "Donald Trump's trade policies," saying the US threat and imposition of tariffs have significantly heightened global economic uncertainty and dampened growth prospects.

Habeck emphasized that these unpredictable trade policies have once again posed serious challenges for Germany's export-reliant economy. He pointed to the country's integration into global supply chains and its openness to international trade.

The concern is echoed in a joint report released earlier this month by Germany's leading economic think-tanks, which also slashed their 2025 growth projections to near zero.

The report cited US tariffs as a major headwind, particularly the 25-percent levy on car imports, which threatens to severely weaken Germany's automotive industry. The report estimated that these car duties could reduce German GDP by 0.1 percent in both 2025 and 2026.

Calculations by the German Economic Institute (IW) also suggest that Washington's so-called "reciprocal" tariff of 20 percent on EU imports could additionally cut Germany's economic output by as much as 290 billion euros ($330 billion) over four years. This equates to an average annual GDP loss of 1.6 percent by 2028.

Domestically, Habeck noted that economic conditions have begun to stabilize. A decline in political uncertainty could help spark a gradual recovery in private consumption, he said, adding, "The fiscal policy decisions of the incoming government may provide positive momentum, although their effects will likely only become noticeable in the coming years."

Germany has introduced an expansionary fiscal policy after amending its basic law to allow for increased public borrowing, including the creation of a 500-billion-euro infrastructure fund aimed at addressing long-standing public investment deficits.

"But money alone won't solve the problem," Habeck warned, citing persistent structural challenges such as skilled labor shortages. He urged the next government to address these issues "quickly and decisively."

So far, in its coalition agreement, the incoming federal government has outlined a range of measures aimed at boosting the sluggish economy. These include corporate tax cuts, more flexible labor regulations, and the expansion of renewable energy.

According to the government projection, the German economy is expected to grow by 1 percent in 2026.