Crisis alert! Germany's economy is slipping into unprecedented slump

Crisis alert! Germany's economy is slipping into unprecedented slump

Germany's economy is in an unprecedented crisis, as a current survey of 23,000 companies by the German Chamber of Commerce and Industry (DIHK) shows. A decline in gross domestic product (GDP) of 0.3 percent is forecast for 2025, which represents the third year of contraction in a row - a negative record since the founding of the Federal Republic of Germany. DIHK General Manager Helena Melnikov says that there is currently no economic revival in sight and the situation remains tense.

The mood is gloomy: 29 percent of companies expect fewer exports, only 19 percent hope for an improvement in their business abroad. The export forecast has worsened; A decline of 2.5 percent is now expected for 2024, after a decline of 1.8 percent was previously forecast. This negative development is due, among other things, to the special tariffs imposed by US President Donald Trump in April, which create additional costs and bureaucracy for the German economy and shake the confidence of companies.

Impact of US trade policy

The Bundesbank speaks of a “new normal” that is characterized by uncertainties in US politics. The protectionism of Donald Trump's second presidency has led to extensive additional tariffs that have a direct impact on the German economy. Despite these political tensions, the USA remains Germany's most important trading partner. The USA acts as both a sales market and an investment location and a hub of global supply chains, meaning that decisions made in Washington have a significant impact on German companies in various industries.

The DIHK also positions itself on the challenges that US trade policy brings with it for German exporters. 43 percent of companies report financial problems, while 59 percent see the economic policy environment as the greatest business risk. High labor costs, bureaucracy and new trade barriers are identified as key challenges.

Investment plans and employment

The uncertainty means that many companies are hesitant to invest. Only 19 percent are planning to expand capacity, which is a historic low. In addition, companies are reluctant to employ them: While only 13 percent plan to create new jobs, 22 percent of companies intend to cut jobs. These developments give rise to worrying forecasts and are increasing concerns about Germany's economic stability.

The German economy is therefore facing major challenges, which are exacerbated by a volatile international trade situation and domestic political hesitation. At this time, a long-term strengthening of transatlantic trade is more urgent than ever to mitigate the negative impacts and enable a sustainable economic recovery.

For more information about the impact of US trade policy on the German economy, you can read the articles from Picture and DIHK read.