Germany, close to recession? - Bundesbank warns of risk of tariff impact
The German economy could suffer a "mild recession" in 2025, Bundesbank President Joachim Nagel said, shrinking for the third consecutive year for the first time.
The German government has lowered its economic forecast for this year and now predicts stagnation, instead of growth of 0.3%.
"It's not surprising that stagnation is more likely this year, perhaps even a mild recession," Nagel said. "Overall, the uncertainty factors in the economy are very high, and that's leading to this slowdown in growth."
Germany, with its export-oriented economy, is highly sensitive to tariffs announced by US President Donald Trump. The United States was Germany's largest trading partner in 2024, with bilateral trade in goods totaling 253 billion euros.
Nagel said the impact of tariffs on inflation is more of a factor in the U.S. than in Europe, where concern focuses on the economic stress caused by tariffs.
He added that Germany's economic model based on exports and industry is faltering, with industrial production declining since the end of 2017, but it has proven that it can adapt to challenges.
Nagel also said that the economic measures of the next government in Germany must go in the right direction. "What matters now is that what was agreed upon in the coalition agreement is implemented quickly," he underlined.
The Bundesbank head also reiterated that he expects euro zone inflation to stabilize at the European Central Bank's 2% target this year, even though the level of uncertainty is extremely high.
"I think central banks are used to a situation like this uncertainty. This is part of our job. Maybe it's a little more compared to other periods, but I think we can handle this," Nagel said.
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