Bundesbank President Joachim Nagel said Germany would be particularly hard hit by protectionism and trade tariffs from the United States, worsening the already bleak prospects for Europe’s largest economic system.
On Monday, February 17, during a speech in Frankfurt, Mr. Nagel stated that Berlin’s high export orientation increases its vulnerability to falling external demand. Besides, in this context, he noted that the growing uncertainty is an additional obstacle.
Joachim Nagel, who is also a member of the European Central Bank’s interest rate-setting Governing Council, cited the Bundesbank estimate that in 2027 output in Germany could be almost 1.5% below the baseline scenario due to the United States policy shift.
The German economy has been in the condition of contraction for two years now. For the economic system of this country, the main source of weakness is problems in the manufacturing sector. It is worth noting separately that there are no guarantees that 2025 will be more successful. There is a high probability that the German economic system will continue to move on a downward trajectory in the current year. This assumption is based on the fact that the causes and circumstances that formed the difficult situation continue to be in force, and besides, Berlin is faced with the risks associated with Washington’s tightening trade policy after the inauguration of the President of the United States, Donald Trump. It is worth noting that the current condition of the German economy is the most negative since the beginning of the present century.
The Bundesbank predicts that Germany’s gross domestic product (GDP) will grow by 0.2% in 2025. It is worth noting that this increase in the indicator is clearly insufficient to compensate for the losses of recent years. The Bundesbank also warned of a possible further drop in German GDP. The financial regulator noted that the corresponding scenario would be implemented if Donald Trump fully implements trade levies against China and other countries. Last week, he announced his plans to impose tariffs on imported cars around April 2. The corresponding measures will be a painful blow to the German economy.
Joachim Nagel stated there are no winners from protectionism. He also noted that the implementation of the relevant strategy would provoke welfare losses in all affected countries, even if Germany would be affected more than others.
According to Joachim Nagel, the impact on consumer price growth would be less clear. He stated that inflation could be stoked, although the extent is very uncertain. Joachim Nagel also continues to expect inflation to reach the 2% target soon.
Currently, economic problems are the main topic within the present configuration of the internal German political discourse. Snap elections will be held in Germany on Sunday, February 23. Within the framework of the current forecasts, the expectation dominates that Chancellor Olaf Scholz will be defeated by Friedrich Merz, who heads the conservative CDU/CSU bloc and promises to implement a policy focused on economic growth.
As we have reported earlier, Germany’s Business Outlook Remains Low.
