Bundesbank: Economic growth to remain sluggish

AA / Photo: dpa

Creation Date: June 06, 2025 17:50

The Bundesbank announced its growth and inflation forecasts for the 2025-2027 period in its economic outlook report published in June. Accordingly, the bank lowered its calendar-adjusted Gross Domestic Product (GDP) growth forecast for 2025 from 0.2 percent to 0, and for 2026 from 0.8 percent to 0.7 percent. The bank raised its GDP forecast for 2027 from 0.9 percent to 1.2 percent. The report emphasized that the recovery of the German economy was delayed due to uncertainty regarding international trade policy, while it was stated that infrastructure and defense spending would help start a significant recovery in the economy starting next year.

INFLATION EXPECTATION 2.2 PERCENT Bundesbank experts stated that companies continue to struggle with difficulties amid ongoing uncertainties in global trade, and predicted that the German economy will experience a third consecutive year without growth. Experts also stated that inflationary pressure in the country will continue to decrease. The bank's inflation expectation for this year was lowered from 2.4 percent to 2.2 percent. The bank predicted annual inflation of 1.5 percent in 2026.

TRUMP TARIFFS AND DEFENSE SPENDING Bundesbank President Joachim Nagel said in his assessment of the issue that US President Donald Trump’s new tariffs and uncertainty about future US policy will initially reduce economic growth. “This (tariffs and uncertainty) is hitting German industry at a time when it is starting to stabilize after a long period of weakness. In addition, we expect additional government spending on defense and infrastructure to significantly increase GDP growth by the end of 2027,” Nagel said.

GERMAN ECONOMY The German economy had grown stronger than expected by 0.4 percent in the first quarter of 2025. However, the tariff dispute between US President Donald Trump and the EU continues to cause uncertainty among companies and consumers. On the other hand, the tariff wars and some of Trump's statements have fueled concerns about the negative impact on global trade, with most analysts viewing Trump's tariff policy as a "particular risk" to German economic growth.

Trump's aggressive tariff policy has cast a shadow over the global economic outlook, while the German economy, which is more reliant on manufacturing than other countries in the region, remains fragile due to persistent weakness in output.

The country's economy regressed by 0.2 percent in 2024 compared to the previous year. This was the second consecutive year of contraction as increasing competition with China and structural problems slowed down the economy.

The government had previously lowered its growth forecast for this year, which was previously announced as 0.3 percent, to zero on April 24 due to global trade tensions following US President Donald Trump’s policies. If the government’s latest forecast comes true, the German economy will not be able to grow this year either, and will thus have spent the third year in a row in recession. The Bundesbank lowered its previous growth forecast of 0.2 percent to zero; the Board of Experts had lowered its forecast from 0.4 percent. The government revised its growth forecast to zero.