Germany downgrades 2025 growth forecast to zero

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Germany has revised down its growth forecast to zero for this year, with its export-dependent manufacturing sector set to take a hit from US President Donald Trump’s trade wars.

Thursday’s estimate by the German government compared with its previous prediction of a 0.3 per cent rise in GDP for 2025.

The country’s economy, Europe’s largest, is suffering the most protracted slump in its postwar history. German GDP shrank by 0.2 per cent last year and by 0.3 per cent in 2023. 

Friedrich Merz, who is set to be voted into office as German chancellor next month, has vowed to reinvigorate the economy with higher debt-funded spending on infrastructure and defence, as well as tax subsidies for investment and deregulation.

But while many analysts say those plans will boost Germany’s growth in the coming years, Trump’s wide-ranging tariffs pose an immediate challenge to the country’s export-heavy economy. 

Trump announced 20 per cent “reciprocal” tariffs on the EU this month, but then imposed a 90-day pause, which brought the bloc’s rate down to a universal 10 per cent rate while the two sides negotiate over a final level.

The German government’s downward revision follows a similar move by the IMF, which this week also predicted zero 2025 growth for the country, down from 0.3 per cent.

“The German economy is preparing for turbulence,” Clemens Fuest, head of the Ifo research institute, said on Thursday. He added that Ifo’s Business Climate Index showed uncertainty for manufacturing companies growing strongly.

This is a developing story