Economic forecast for Germany: zero growth and trade crisis!

Economic forecast for Germany: zero growth and trade crisis!

The European Commission today published the spring economic forecast and rated the economic outlook for Europe as uncertain. Particularly affected is Germany, the EU's largest economy, which is expected to show no growth this year - the forecast calls for exactly 0% by the end of the year. This represents a step backwards, as moderate growth of 0.7% was previously expected. Growth of 1.1% is not expected to return until 2026, while German exports will decline by almost 2% for the third year in a row. This development is primarily due to a structural loss of market share in exports to China, which is characterized, among other things, by lower sales of cars. This is reported by the South German newspaper.

Uncertainty on the markets is exacerbated by the ongoing trade conflict between the EU and the USA. US President Donald Trump has imposed tariffs of 25% on steel and 10% on car imports from the EU. Germany is particularly suffering from this as it is the most affected by these tariffs. The EU Commission expects growth in the euro zone to fall to 1.1% on average, which is 0.4% less than previously estimated. Smaller and economically weaker members of the Union contribute significantly to this decline.

Fiscal impact

The changed forecast has a direct impact on Germany's debt ratio and budget deficit. The debt ratio is expected to rise to 65%. To counteract this situation, the federal government has decided to suspend the debt brake and is planning a special fund of 500 billion euros. This financial flexibility could increase the growth rate by 1.25% by 2029 and 2.5% by 2035, assuming the money is invested productively. EU Economic Commissioner Valdis Dombrovskis has announced talks with Berlin on public finances to encourage an increase in government spending that will also benefit other European countries. Chancellor Friedrich Merz and Vice President Lars Klingbeil are being asked to promote targeted investments.

Avert a trade dispute

In addition to the economic challenges, the EU faces the risk that further tariffs could be imposed in the trade conflict with the USA. EU Trade Commissioner Maros Sefcovic is currently visiting Washington to avert a trade dispute and prevent threatened tariffs on German steel, Italian sports cars and French medicines. Sefcovic emphasizes the negative consequences of tariffs on companies and employees on both sides and advocates expanding business relationships. A key point is that the USA wants to increase its production of liquefied natural gas, while the EU is looking for alternative energy sources in order to reduce dependencies on Russia.

Trade relations are of great importance as the US is the second largest market for EU vehicle exports after the UK. The combined trade volume between the EU and the USA amounts to an impressive 4.5 billion euros per day. Nevertheless, Donald Trump complains about an “unfair” trade balance, as the USA exports 200 billion euros less to Europe every year. To counteract this, the EU could seek to balance its trade balance to protect its exports and delay declines in its trade surpluses. In addition, arms deliveries could represent another business area, as Germany will have concluded arms contracts worth 23 billion euros with the USA in 2022. Above all these challenges is the thought of a possible alliance between the EU and the USA in global competition with China in order to position themselves against non-market economy practices. This reports daily news.