Germany's economy will stagnate this year as tariffs cast a shadow, advisers say

Associated Press

Wed, May 21, 2025, 4:14 AM 1 min read

BERLIN (AP) — Germany's economy will stagnate this year as the country faces headwinds from U.S. President Donald Trump’s tariffs and trade threats, the government's panel of independent economic advisers said Wednesday.

Germany has Europe's biggest economy, but hasn't seen significant economic growth in five years and the gross domestic product shrank in each of the last two years.

The advisory panel, in its first forecast since new Chancellor Friedrich Merz's government took office earlier this month, predicted the economy will stagnate this year and grow by 1% in 2026. Its previous forecast, in November, was for 0.4% growth this year.

The new outlook is in line with the forecast made a month ago by Germany's last government.

Merz, who took office on May 6, has pledged to roll back bureaucracy, advance digitization, provide tax breaks for companies and promote more European trade agreements.

“Trump's tariff policy is increasing uncertainty and endangering economic growth worldwide,” said Monika Schnitzer, the head of the panel. But she said that a huge investment package put together by Merz's coalition “offers opportunities for a modernization of infrastructure in Germany and a return to a higher path of growth,” meaning a better outlook for next year.

Germany for years expanded exports and dominated world trade in engineered products such as industrial machinery and luxury cars. But it has suffered from increasing competition from Chinese companies, along with many other factors, and Trump's tariffs have added a further risk to German exports.

Last year, the United States was Germany’s biggest single trading partner for the first time since 2015, displacing China from the top spot as exports to the Asian power declined.