Germany’s economy is likely to stagnate at best in 2025 after shrinking for two years and the impact of US tariffs could weigh down an already unimpressive showing, leading think tanks warned on Thursday.

Germany's economic outlook continues to appear grim, as warned by five economic institutes in their latest report. With minimal growth projected at just 0.1% for the current year—marking a downgrade from the previously expected 0.8%—the country faces the consequences of sustained challenges over the past two years. The looming US tariffs on crucial imports like aluminum and steel are cited as significant threats, potentially leading to an additional 0.1 percentage point reduction in economic growth for this year and next. The uncertainty surrounding the implications of the Trump administration's trade policies further exacerbates the situation, adding a layer of unpredictability to an already fragile economic environment. The think tanks' analysis suggests that even with efforts from Germany's prospective new government, led by likely chancellor Friedrich Merz, the anticipated revitalization of the economy might struggle to take hold immediately. They project a modest recovery in 2026, with growth possibly reaching 1.3%. However, the report emphasizes that quantifying the effects of tariffs in the globalized economy remains complex, especially with such steep increases in trade restrictions being unprecedented in recent history. In conclusion, the report serves as a stark reminder of the interconnectedness of global trade and domestic economic health. The potential stifling of growth due to external factors illustrates how vulnerable economies can be in a globalized marketplace. Observers will be keen to monitor the new government's proposed measures and whether they will be sufficient to counteract these external pressures and stimulate actual growth during these challenging times.