The German Minister of Finance, Jörg Kukies, emphasized the urgent need to reduce uncertainty affecting the economy and businesses during a speech at the World Economic Summit in Washington on April 23, 2025. His remarks came amid ongoing negotiations regarding trade tariffs with the United States, reflecting a growing concern over the impact of prolonged uncertainty on both the U.S. and German economies.
Kukies voiced apprehensions about non-performing loans and their potential ramifications for economic stability, stating, "We must resolve trade issues with the United States to restore confidence in investment." His comments underscore the critical nature of achieving a trade agreement, particularly as Germany has been experiencing a stagnation period for two consecutive years, marking it as the only G7 nation without economic growth during this timeframe.
The situation has been exacerbated by tariffs imposed by U.S. President Donald Trump, which could significantly impact the German economy and lead to a third consecutive year of recession—an unprecedented occurrence in the post-war history of the nation. Kukies highlighted the urgency of reaching a trade agreement to mitigate risks posed by these tariffs, which could stifle economic recovery.
Earlier in April, Trump announced a 20% import tax on goods from the European Union (EU) and a 25% tariff on steel, aluminum, and automobiles, aiming to address the trade imbalance between the two regions. In response, the EU planned to impose a 25% tariff on various American goods. However, Trump unexpectedly suspended the mutual tariff policy for 90 days during negotiations, although a base tariff of 10% remains in effect.
In light of these developments, the German government has revised its Gross Domestic Product (GDP) forecast for 2025 to 0%, down from an earlier prediction of 0.3% made in January. This marks the first time in history that Germany, the largest economy in Europe, is projected to experience three consecutive years of no growth, following declines in 2023 and 2024. The government anticipates a slight recovery in 2026, with a growth forecast of 0.9%, revised down from 1.1%.
The economic outlook for Germany is particularly concerning given that the United States has become its largest trading partner, making the potential impact of U.S. tariff policies especially alarming. The International Monetary Fund (IMF) has also downgraded Germany's economic growth forecast for 2025 to 0%, predicting that it will be the only G7 country facing stagnation this year due to the vulnerability of its export-driven industries to global trade tensions.
As uncertainty surrounding tariffs continues, many companies in Germany are delaying investments until the situation becomes clearer, leading to further adjustments in economic forecasts. If the U.S. formally implements the 20% import tariff, Germany's economic growth could decline even further. The Kiel Institute for the World Economy and the Ifo Institute for Economic Research have previously estimated that Germany's economy might contract by 0.3% under such circumstances.
Moreover, the German Economic Institute (IW) has warned that U.S. tariff policies could reduce Germany's economic output by €290 billion (approximately $330 billion) over four years, with GDP growth for the country projected to be impacted by 1.6% by 2028. The IW has called for the EU to respond aggressively, suggesting that retaliatory measures could extend beyond goods to include U.S. digital companies and other service sectors.
In the midst of these challenges, the German economy is showing mixed signals. Preliminary Purchasing Managers' Index (PMI) data released on April 23, 2025, indicated that the Services PMI fell to 48.8, below expectations of 50.3 and down from 50.9 the previous month. This decline reflects ongoing pressures in the service sector due to reduced activity, rising costs, and narrowing margins.
Conversely, the Manufacturing PMI stood at 48.0, surpassing the forecast of 47.5, though it decreased from 48.3 in the prior month. The manufacturing sector remains somewhat robust despite external challenges and U.S. trade taxes, benefiting from increased production and orders. Overall, the Composite PMI registered at 49.7, falling short of the predicted 50.4 and down from 51.3 previously, illustrating a mixed economic landscape in Germany.
Despite the challenges, some segments of the manufacturing sector are still showing strength, supported by lower energy prices and higher sales, which have helped improve profit margins. However, the service sector continues to struggle with declining activity, high costs, and reduced margins, even as employment and new business opportunities remain stable.
Looking ahead, the economic forecast for Germany remains uncertain and may change depending on the outcomes of negotiations with Trump regarding trade with Europe and the United States. Ursula von der Leyen, President of the European Commission, proposed a "zero-for-zero" agreement, suggesting no tariffs on industrial goods exchanged between the EU and the U.S. However, Trump rejected this offer, arguing it was insufficient and demanding that the EU purchase $350 billion worth of energy from the U.S. in exchange for tax relief.
As the situation unfolds, the stakes are high for both Germany and the broader European economy. The ongoing trade negotiations and potential tariffs could have lasting implications on growth, investment, and economic stability in the region, making it a critical period for policymakers and businesses alike.
