The Blubber

On Thursday, the German government downgraded its economic outlook for 2025, now forecasting zero growth and signaling another tough year for Europe’s largest economy.

This revision follows a January projection that had anticipated a modest 0.3% increase in gross domestic product (GDP) for 2025. However, outgoing Economy Minister Robert Habeck said in Berlin that the center-left administration now expects stagnation instead.

The downgrade leaves little room for optimism after back-to-back recessions in 2023 and 2024.

Notably, the January forecast was itself a cut from October’s projection, which had predicted 1.1% GDP growth.

Germany’s economy has been gripped by prolonged crisis in recent years, with inflation surging in the wake of the COVID-19 pandemic and Russia’s invasion of Ukraine.

Crucial export-driven sectors—particularly car manufacturing and pharmaceuticals—are now under added pressure due to U.S. tariffs. A sweeping 10% duty on all imports into the U.S., along with targeted 25% tariffs on cars, aluminum, and steel, are already in place.

President Donald Trump has announced even more tariffs affecting a range of trading partners. While many of those measures have since been suspended to allow for negotiations, they’ve nonetheless stirred volatility in global financial markets.

Unveiling the revised forecast, Habeck emphasized that global economic uncertainty has grown significantly due to Trump’s trade policies.

These effects—ranging from market disruption to a decline in global growth expectations—are hitting Germany at a time when its manufacturing base is already grappling with weakening foreign demand, he said.

Looking ahead to 2026, the government projects only slight GDP growth of 1%.

“The fiscal decisions of the next German government will have a positive effect,” Habeck said, “but that impact won’t be strongly felt until the coming years.”

Following elections held on February 23, Germany is set to transition to a new conservative-led government on May 6. The Christian Democratic Union, led by likely next chancellor Friedrich Merz, and its Bavarian sister party, the Christian Social Union, reached a coalition agreement with the Social Democrats (SPD) earlier this month.