Economists cut Germany's 2025 growth forecast to 0%

ISTANBUL

The German Council of Economic Experts (SVR), which advises the German government, reduced its 2025 growth forecast for the country's economy from 0.4% to 0% on Wednesday.

The SVR, which consists of economics professors, updated its growth forecasts for the German economy covering 2025-2026, which it shared in November last year.

The five-member board also projected the GDP growth for 2026 to be at 1%, with the expectation that the funds provided by the new €500 billion financial package will create a positive impetus for construction and equipment investments as well as public spending.

Stating that US President Donald Trump's tariffs will put pressure on the export-based German economy, the board said: "Domestic challenges continue to slow down Germany’s economic growth. For example, excessive bureaucracy and lengthy approval procedures result in unnecessarily high costs for firms."

The SVR also assessed that current trade policy disruptions, ongoing efforts to reduce carbon emissions, demographic aging and the increasing use of artificial intelligence (AI) will accelerate structural change in Germany.

German exports could fall with a sharp and unpredictable increase in tariffs, the board said in its report.

SVR predicted that annual inflation, which averaged 2.2% last year, will fall to 2.1% in 2025, and to 2% in 2026.

"The outlook for the German economy in the forecast period will largely depend on the effects of US tariff policy and the fiscal package of the German government," it said.

In March, German lawmakers in the previous Bundestag voted in favor of a constitutional amendment to create a €500 billion special fund for infrastructure and climate and to remove defense spending from the “debt brake” in the future.

Meanwhile, the tariff issue and some of Trump's statements have fueled concerns about the negative impact on global trade, with most analysts seeing Trump's tariff policy as a “special risk” to German economic growth.

While Trump's aggressive tariff policy casts a shadow over the global economic outlook, the German economy, which depends more heavily on the manufacturing sector than other countries in the region, remains vulnerable to persistent weakness in production.

The country's economy contracted by 0.2% in the whole of 2024 compared to the previous year, following the 0.3% contraction in 2023.

The economy contracted for the second consecutive year as increased competition with China and structural problems curbed the economy, also making Germany the only G7 economy that has not grown for the last two years.

The government had also lowered its growth forecast for this year, which was previously announced as 0.3% on April 24, to 0% due to the impact of global trade tensions following Trump's policies.

If the government's latest forecast comes true and the German economy does not grow this year, it will be the third consecutive year of no growth.

On the other hand, the German economy grew by 0.2% in the first quarter of this year, thanks to household consumption expenditures and investments, avoiding a recession.