The German government cut its growth forecast on Thursday and now expects the economy to likely stagnate this year as well, as uncertainty from global trade disputes is expected to hobble growth and dampen investment.
Germany's economy is expected to post zero growth in 2025, outgoing Economy Minister Robert Habeck said, blaming U.S. President Donald Trump's trade policy.
"The U.S. trade policy of threatening and imposing tariffs has a direct impact on the German economy, which is very export-oriented," he said, presenting the forecast.
Germany was the only G-7 economy that failed to grow over the last two years, and the tariffs announced by Trump could put Europe's largest economy on track for a third consecutive year without growth, marking a first in its history.
The German government had previously expected a slight increase in gross domestic product (GDP) of 0.3% for this year.
It also cut its growth forecast for 2026 to 1% from 1.1%.
The U.S. is Germany's largest trading partner and last year accounted for approximately 10% of its exports, ranging from cars to chemicals.
Under Trump, it now levies a 10% tariff on European Union exports into the country, having earlier announced a 20% rate, which was then paused.
"Tariffs and trade policy turbulence are hitting the German economy harder than other nations," Habeck said.
"We depend on open markets, functioning markets and a globalised world. That's what has made this country rich," he told a Berlin press conference.
German GDP contracted by 0.3% in 2023 and by 0.2% in 2024, due to higher energy prices following Russia's full-scale invasion of Ukraine.
It has also been hit by increasingly fierce Chinese competition in key industries such as automobiles and machinery.
"I would say that we are going through a paradigm shift when it comes to the basic earners for the German economy," Habeck said.
"Our big trade partners, China and the U.S., and our neighbor, Russia, are causing us problems."
Looking ahead, Habeck expressed hope that the impact of a major new spending package worth many hundreds of billions of euros could help revive the economy under the next government, led by conservative Friedrich Merz, who is expected to take power in early May.
"It's good that investments are finally being made," Habeck said, adding that they "can offset the slump or the pressure on foreign trade to some extent."
The growth forecast took into account the extra public investment and also assumed there would be no further escalation of the tariff "madness," he said.
Habeck also called on his successors to strengthen European unity and independence, so that Germany could stand on its own against economic giants.
"'Made in Germany is over,'" he said. "We are a single market and it is through that market that we will bring investment back into Europe."
"We must support the EU in taking a clear position, in negotiating confidently with the U.S. and at the same time helping it be prepared to impose effective counter-measures."
