Germany is suffering from some of the most severe reductions in economic growth among developed countries, and economists warn that it is at great risk from the trade barriers planned by the incoming administration of US President-elect Donald Trump, according to the British Financial Times.
Economists polled by Consensus Economics expect the German economy to expand only 0.6% in 2025, down from 1.2% previously expected 6 months ago, which is the largest reduction in growth expectations during such a period for any industrial economy. big.
Fears
According to the British newspaper, the cuts partly reflect fears that investment decisions will freeze even before Donald Trump returns to the White House, as companies postpone major commitments or even move production.
Analysts say that the political turmoil in Germany is increasing the distress with the collapse of the government coalition and the country heading to new elections.
“The pillars of the German economic miracle after World War II – global free trade, the automobile industry and NATO – are shaking at the same time,” said Moritz Schularek, head of the Kiel Institute for the World Economy, in addition to the economy suffering from an aging workforce, excessive regulation, and an increase in digitization. .
Germany’s real GDP, which has stagnated since the second half of 2021, was preparing for tepid growth next year even before Trump won the US presidential election last month, and now economists have lowered their expectations further.
Holger Schmieding, chief economist at Berenberg Bank, cut his forecast by almost half for growth of 0.3% in 2025, which is lower than his forecast for the economies of the euro zone, Britain and the United States. “Germany is severely exposed,” the newspaper quoted him as saying, adding that the risks of the trade war had emerged. When there was “high uncertainty about economic policy in Germany.”
For this year, economists polled by Consensus Economics about a week after Trump’s victory expected the German economy to contract at a rate of 0.1%, a downgrade from a forecast of 0.3% growth next January.
The “unpopular” tripartite coalition in Germany, according to the newspaper’s description, consisting of the Social Democrats, Greens and Free Democrats, collapsed a day after the US elections, and early elections are scheduled to be held in late February, but coalition talks to form a new government are likely to continue for months. .
Painful barriers
“Anxiety and tension among German businessmen are very high,” said Matthias Kramer, head of foreign trade at the Confederation of German Industries, adding that the additional blow from the imposition of trade barriers would be “extremely painful.”
The United States will account for 10% of German exports in 2023, its highest level in more than two decades.
Since 2015, the United States has replaced France as Germany’s most important trading partner, and has continued to grow in importance as China – a rapidly growing market in the two decades before the pandemic – has dramatically reduced its appetite for German products and sanctions have affected exports to Russia.
With German imports from the United States rising at a much slower pace, Germany’s trade surplus with America rose to a record level of 63.3 billion euros in 2023. On the eve of the US elections, some German exporters rushed to ship goods to the United States, and exports increased last September. By 4.8% on a monthly basis once adjusted for price changes and seasonal fluctuations.
In a scenario in which Trump introduces the 20% tariffs on non-Chinese imports that he promised in his campaign, German exports to the United States could fall by 15%, according to estimates by the Munich-based Ifo Institute.
Highlighting the threat of “geographical economic fragmentation,” German Bundesbank Governor Joachim Nagel said that full implementation of Trump’s tariff plans could reduce German GDP growth by 1%.
Since late 2020, German companies have significantly increased their investments in the United States, especially in strongly energy-dependent sectors, according to data from the German Bundesbank.
Cars
German automakers, which are struggling with the costly transition to electric vehicles, intense competition from Chinese competitors and high costs, and pharmaceutical groups in particular, will be affected, as the United States accounts for 13% of total German car sales abroad, and 22% of its pharmaceutical exports, and indicates Ifo Research Center estimates that both will collapse by a third in a full-fledged trade war, according to the newspaper.
Even in their home market, life will become more difficult for German companies, with many economists warning that Chinese producers will shift lower-priced products to the EU if they face higher US tariffs than European ones, and while this may help ease inflation. In the EU, local manufacturers will face increased competition and their profit margins will shrink further.
The decline in German manufacturing has not been stopped (industrial production is 10% below its pre-Corona level) at a time when other OECD countries, including the United States and South Korea, are working to boost production.
Some of the negative impact on Germany could be mitigated if US demand is boosted by Trump’s tax cut plans, boosting appetite for German imports, especially if the US dollar continues to strengthen against the euro.
