Saturday, 15 March 2025
Germany’s economy remains fragile as Atradius predicts only slight growth in 2025, with ongoing industrial stagnation and global trade tensions dampening prospects. A new government set to be elected on 23 February will face the challenge of preventing a third consecutive year of economic contraction, according to Frank Liebold, Country Manager Germany at Atradius.
Slow Recovery Amid Economic Challenges
Germany’s economic struggles are reflected in declining exports and weak investment levels. In 2024, exports fell by 0.7%, while investments dropped by 2.7%, marking a continued downturn across key industries such as electrical equipment, mechanical engineering, and automotive manufacturing. Industrial production is forecast to decline by 2% in 2025, with consumer sector growth expected to remain sluggish at 1.3%, weighed down by persistent inflationary pressures.
While Atradius expects Germany’s economy to return to positive growth at 0.4% in 2025, Liebold warns that this marginal increase is far from guaranteed. “Even if the outlook for 2025 and 2026 seems rather bleak, it is not entirely without hope. The new government has the ability to improve conditions for German businesses, but decisive action will be required,” he stated.
Trade Tensions and Industrial Uncertainty
The German automotive industry, a key pillar of the country’s economy, is projected to grow by just 2% in 2025 after shrinking 4% in 2024. Meanwhile, construction output, which fell by 3% last year, is expected to stabilize at a low level, while engineering output remains in negative territory following a 6% decline in 2024.
Further uncertainty stems from U.S. trade policy, which could exacerbate Germany’s economic woes. The return of President Trump has brought renewed threats of tariffs on German cars and EU imports. Recent U.S. tariffs on steel and aluminum have had limited impact, but a proposed 10% tariff on all EU exports could reduce Germany’s GDP growth by 0.3 percentage points in 2025 and 0.4 points in 2026, according to Oxford Economics.
Liebold warns that these trade barriers come at a particularly vulnerable time for Germany’s export sector, which is already struggling to compete with cheaper Chinese products on the global market. “The risk of nearly zero economic growth is increasing, and the German economy cannot afford further stagnation,” he said.
German Businesses Want ‘America First’ Approach for the EU
A recent Atradius survey of 500 German companies found that 52% support an ‘America First’ policy for Germany and the EU, advocating for protectionist measures to shield domestic industries. However, 48% of respondents opposed such policies, arguing that economic isolationism is not a viable strategy in today’s interconnected world.
Instead, businesses are calling for bureaucratic reductions, lower energy costs, tax relief, stable political policies, and solutions to the skilled labor shortage. While many favor protectionist policies, critics argue that Germany’s economic success depends on global trade and cooperation rather than isolationist strategies.
All Eyes on Germany’s Upcoming Election
With the early parliamentary elections on 23 February, Germany’s economic future hangs in the balance. The CDU/CSU leads in the polls, but forming a stable coalition will be key to political and economic stability. Potential partners could include the liberal FDP, the left-wing populist BSW, or the Left Party, depending on their ability to pass the 5% threshold for Bundestag representation.
“The new government will likely be less divided than the previous coalition, which could improve decision-making,” Liebold noted. “However, major structural reforms or economic stimulus measures are unlikely in the short term, meaning that those expecting a rapid turnaround may be disappointed.”
Uncertain Future Despite Necessary Reforms
While cross-party proposals exist to reduce bureaucracy and cut costs, implementation remains the biggest challenge. Economic headwinds, political constraints, and rising populism are limiting Germany’s ability to enact major reforms.
“The need for decisive action is becoming increasingly urgent,” Liebold emphasized. “But whether these measures will actually be implemented remains uncertain. Germany’s democratic parties must work together constructively to address the country’s economic challenges—especially in the face of rising right-wing populism.”
As Germany heads to the polls, the country faces a pivotal moment that will determine whether it can break free from stagnation or face another year of economic struggles.
