Economy stagnates: Mini-growth of 0.1 percent expected

Leading economic research institutes are forecasting mini-growth of 0.1% of gross domestic product (GDP) for Germany this year. They have already taken into account the effects of US President Donald Trump's tariffs on steel, aluminum and cars. However, the recently announced further US tariffs from the beginning of April and corresponding countermeasures by the EU are not yet included in the so-called joint forecast published in Berlin. According to the experts, they are likely to put further pressure on growth.

After two years of recession - i.e. persistently shrinking economic output - Germany is therefore threatened with low growth, perhaps even stagnation. "The geopolitical tensions and the protectionist trade policy of the USA are exacerbating the already tense economic situation in Germany," said Torsten Schmidt, Head of Economic Research at the RWI - Leibniz Institute for Economic Research.

The Trump effect

Economists expect the US tariffs on aluminum, steel and cars of 25%, including counter-tariffs from the EU, to reduce GDP by 0.1 percentage points this year and next. This effect has already been factored into the expected mini-growth of 0.1% for the current year.

If Trump's latest tariff increases from the beginning of April and counter-tariffs are added, the losses are likely to double to 0.2 percentage points in both years, according to the experts. However, it is difficult to specify the concrete effects - especially as a negotiated solution is still conceivable.

"Tariffs have not been this high in the USA since the Great Depression of the 1930s," write the experts - and the impact of import duties is difficult to quantify. This is slowing down global trade: Production becomes expensive, and there is also unpredictability. Investors are therefore likely to postpone decisions. In their previous forecast in the fall, the institutes had still expected growth of 0.8 percent.

For the coming year, the institutes expect growth of 1.3%, as in the autumn - albeit starting from a lower level. 0.3 percentage points are due to a higher number of working days. GDP fell by 0.2 percent in 2024.

It is not just the economic situation

"What has actually massively weakened our export industry in recent years has been the increasing competition from China," says Timo Wollmershäuser from the Ifo Institute in Munich. On the one hand, exports to China have declined, while on the other, the country is competing with Germany on global markets for products that Germany has long sold there. There have also been relocations from Germany to China, for example in the automotive industry. And with the new US tariffs, it is likely that more Chinese products will enter the market here.

Germany has structural problems. Some of the energy-intensive industry appears to have disappeared permanently, the experts write. The working population is shrinking and bureaucracy is a burden.

The institutes' advice: safeguard social security systems in an ageing society, more incentives to work and qualified immigration. Energy prices must fall and greenhouse gas savings must be achieved primarily through a_{CO2 price}. A "radical reduction in bureaucracy" is also necessary.

What will black-red bring?

The nascent coalition of CDU/CSU and SPD has gained financial breathing space with the help of the Greens. The debt brake has been relaxed for defense spending, and 500 billion euros have been made available from a special fund, primarily for investment in infrastructure. Economists assume that this means that politicians are making less of an effort to make savings.

According to the forecast, hardly any additional funds are likely to flow in for the current year. For 2026, however, the institutes expect additional expenditure of just under 24 billion euros and 0.5 percentage points higher GDP growth, which they have already factored into their growth expectations.

Schmidt warned that the economy would not be able to implement major infrastructure spending overnight. A sense of proportion is required here so that the new funds do not just fuel inflation. According to the experts, the economy in Germany is unlikely to benefit greatly from the higher defense spending. Germany will have to import armaments if it wants to rearm quickly.

The Germans save

Even though people have more money in their pockets again, private consumption increased only slightly last year at 0.3%. A lot of money went into savings, with the savings rate at 11.4% in 2024 - private households did not spend that much of their disposable income, but rather put it aside.

Inflation, which has been high for a long time, slowed to 2.2% last year. The institutes expect inflation to remain at this level in the current year and to fall slightly to 2.1% in the coming year.

According to the report, the unemployment rate is likely to rise from 6.0% last year to 6.3% this year and fall again to 6.2% next year. Jobs will be lost in manufacturing, construction and business service providers in particular. New jobs would be created in the public sector, education and healthcare.

The Joint Economic Forecast is compiled on behalf of the Federal Ministry of Economics by the German Institute for Economic Research, the Ifo Institute, the Kiel Institute for the World Economy, the Leibniz Institute for Economic Research Halle and the RWI - Leibniz Institute for Economic Research Essen. It is incorporated into the government forecast, on the basis of which tax revenues are estimated.