Robert Habeck, Acting Germany's Minister for Economic Affairs and Climate Protection, presents the spring projection of the current Federal Government. Kay Nietfeld/dpa The German government on Thursday slashed its 2025 economic forecast to zero growth, predicting yet another difficult year for Europe's biggest economy. It follows the January forecast that showed gross domestic product (GDP) growing by 0.3% this year, but the outgoing centre-left administration now believes that the economy will stagnate in 2025, Economy Minister Rober Habeck said in Berlin.
This means there is little hope for relief following two years of recession in 2023 and 2024. January's outlook was already downgraded from the 1.1% GDP growth forecast in October last year. Germany's economy has been mired in an economic crisis in recent years, with inflation soaring in response to the coronavirus pandemic and the Russian invasion of Ukraine.
Key export-based industries such as carmaking and pharmaceuticals are set to be hit hard by US tariffs, with a blanket 10% duty on all imports to the United States and 25% levies on cars, aluminium and steel already in force. US President Donald Trump also announced additional tariffs for a host of trading partners, most of which have since been suspended to allow for trade negotiations, yet causing turbulence across financial markets. Presenting the latest growth forecast, Habeck noted that economic uncertainty has increased significantly worldwide due to Trump's tariffs.
The effects, from market turmoil to a downturn in global growth prospects, are hitting the German economy at a time when manufacturers are already struggling with low demand from abroad, Habeck said. For 2026, the government only expects marginal GDP growth of 1%. "The fiscal policy decisions of the future German government will provide positive impetus, but these will only make a noticeable contribution to growth in the coming years," Habeck said.
Following elections on February 23, Germany is set to get a new conservative-led government on May 6, after the Christian Democratic Union of presumptive next chancellor Friedrich Merz and their Bavarian sister party, the Christian Social Union, agreed on a coalition deal with the Social Democrats (SPD) earlier this month. The agreement includes a number of measures aimed at boosting the ailing economy, including plans to allow companies to write off 30% of their investments from taxes for the next three years. The incoming government also plans to lower energy costs, reform labour laws to allow for more flexible working hours, cut red tape and lower corporate taxes, while also reducing costs to support the expansion of renewables.
Aiming to increase potential growth to well over 1%, the new administration aims to launch a wave of investments to improve Germany's crumbling infrastructure, including bridges, roads, railway lines and schools.
