Germany's economic outlook dampened by tariffs; growth stalled for 2025: Advisory panel

Germany’s economy is expected to stagnate in 2025, according to the country’s panel of independent economic advisers, as global trade tensions and tariffs introduced by US President Donald Trump continue to pose serious headwinds for Europe’s largest economy.

In their first forecast since Chancellor Friedrich Merz assumed office on May 6, the panel projected zero growth for the current year, with only 1% growth anticipated in 2026. This marks a downward revision from the earlier prediction of 0.4% growth, made in November under the previous administration.

Germany's economy has now shrunk for two consecutive years, and hasn't posted notable growth in five years.

“Trump's tariff policy is increasing uncertainty and endangering economic growth worldwide,” said Monika Schnitzer, chair of the advisory panel. She noted, however, that a major investment package unveiled by Merz’s coalition government “offers opportunities for a modernization of infrastructure in Germany and a return to a higher path of growth.”

Chancellor Merz has vowed to cut red tape, boost digitization, introduce corporate tax incentives, and promote expanded European trade agreements to stimulate economic revival.

Germany, once a global export powerhouse in industrial machinery and luxury vehicles, has seen its competitive edge eroded by rising Chinese competition and weakening global demand. The recent tariff impositions by the US have only exacerbated the challenges for German exporters.

In a notable shift, the US became Germany’s largest trading partner in 2024, overtaking China for the first time since 2015, as exports to China declined significantly.