The government has reportedly cut its GDP forecast in response to the US tariff hike and uncertainty over Washington’s trade policy
Germany is facing the third straight year of economic stagnation following the latest US tariff hike and growing uncertainty over Washington’s trade policy, Handelsblatt reported on Tuesday, citing an internal government forecast.
Earlier this month, US President Donald Trump imposed a 20% tariff on all EU goods and 25% on steel, aluminum, and car imports to address what Washington calls an unfair trade imbalance. While Brussels prepared 25% retaliatory tariffs, Trump later paused most new tariffs for 90 days to allow for negotiations. However, a 10% baseline tariff and the targeted 25% remain in place.
According to the report, Chancellor Olaf Scholz’s outgoing government has revised its 2025 GDP forecast for Germany to 0%, down from 0.3% in January. This would mark the first time in history that the EU’s largest economy has failed to grow for three consecutive years, after contracting in 2023 and 2024. The government expects a modest rebound in 2026, with growth now projected at 0.9%, down from an earlier estimate of 1.1%.
Data from the Federal Statistical Office shows that the US was Germany’s top trading partner last year, making the impact of tariffs particularly significant.
Sources say uncertainty over the tariffs has prompted German companies to delay investments until the situation becomes clearer, which led to the change in the projections. If the full 20% tariffs are enacted, growth could drop even further, the sources noted. The Kiel Institute for the World Economy and Munich’s Ifo Institute earlier estimated the German economy could shrink by 0.3% in this scenario.
Business underperformance has added to the economic gloom, but sources said some uncertainty could ease due to the government’s recently approved €500 billion ($570 billion) infrastructure fund and reforms to the debt brake. Relief could also come with a change in leadership, they added. Incoming Chancellor Friedrich Merz, who is set to take office in May, has vowed to revive the country’s economic competitiveness.
Sources told Handelsblatt that the figures could shift depending on Trump’s next moves and the outcome of talks between Brussels and Washington.
European Commission President Ursula von der Leyen earlier proposed a “zero-for-zero” tariff deal on industrial goods between the EU and the US, but Trump rejected the offer, calling it insufficient and demanding that the EU agree to purchase $350 billion worth of American energy in exchange for tariff relief.
At a meeting last week with Italian Prime Minister Giorgia Meloni, Trump said a deal between the EU and the US would “100 percent” be reached “at a certain point,” but added that he is “in no rush” to finalize it.
The report follows a grim forecast from the IMF, which also cut Germany’s 2025 growth outlook to 0.0% this week, predicting it will be the only G7 economy to stagnate this year as its export-driven industries are especially vulnerable to global trade tensions.
