Economic crisis looming: Bundesbank warns of stagnating growth!

Economic crisis looming: Bundesbank warns of stagnating growth!

On May 22, 2025, the Bundesbank indicates that Germany is facing a third year in a row of zero growth. This pessimistic forecast was published by Bundesbank President Joachim Nagel on the sidelines of the G7 summit in Canada. German economic output rose slightly by 0.2 percent in the first quarter of 2023 compared to the previous quarter, but this increase may be due to advance orders as a result of US customs policy.

The economic situation could worsen in the coming quarters. Nagel warns that the declines in gross domestic product (GDP) of 0.3 percent in 2023 and 0.2 percent in 2022 may not be just temporary. If this trend continues, it would be the first series of GDP declines in post-war history. The export industry in particular is suffering from the effects of US tariff policy, which has a negative impact on the competitiveness of German products.

Investments and necessary reforms

In view of these challenges, Nagel emphasizes the urgency of investments and structural reforms by the new federal government. The planned investment program of the coalition of SPD and CDU, known as Black-Red, amounts to more than 500 billion euros. However, the measures will only take effect from 2026 and the Bundesbank does not expect any direct economic stabilizing effects before next year. The planning and approval of infrastructure projects could also be time-consuming, which limits the growth effect of the construction projects.

The increase in defense spending should also be seen as a contribution to economic growth. Given the geopolitical uncertainty, this could even create new jobs, with estimates suggesting up to 200,000 new jobs could be created if defense spending rises to 3 percent of GDP.

Consequences of US tariff policy

In addition to the already strained economic situation, Nagel warns that an escalation of the customs conflict with the USA could have serious consequences for the German economy. Loud daily news It is expected that Germany's economic output could fall by almost 1.5 percentage points by 2027 if the tariffs threatened by US President Trump actually come into force. These tariffs could not only hit Germany as an export nation hard, but could also have a negative impact on the labor market, which could lead in particular to an increase in unemployment.

Overall economic demand could be further impacted by the tariffs. 28.3 percent of companies in Germany are already having difficulty filling vacancies quickly. Although a devaluation of the euro could strengthen Germany's competitiveness in the short term, this measure alone will not be enough to neutralize the negative effects of tariffs.

In summary, it can be said that the coming years will be challenging for the German economy. Reforms and major investments are now more necessary than ever, but implementing these measures will take time to achieve the desired effects.