Tariff increases "slow down" the German economy - Bundesbank predicts risks if they go to 30%
Germany's gross domestic product (GDP) could slow in the second quarter of this year due to the effects of the increase in US tariffs in the first quarter on exports and industrial production, according to a monthly report published by the country's central bank, the Bundesbank.
The report noted that demand for German industrial products, both domestically and internationally, remained weak despite recent gains. While business confidence rose in June, Germany's export sector now faces increasing headwinds from U.S. tariff policies in the short term.
US President Donald Trump announced that a 30 percent tariff will be imposed on products imported from the European Union starting August 1, unless a preliminary agreement is reached. This represents a further increase from the previous tariff of 10 percent.
Therefore, the Bundesbank warned that if the 30 percent tariff comes into effect, it would pose a significant negative risk to the German economy.
According to the report, Germany's industrial production recorded a slight monthly increase on average in April and May, driven by the automotive sector, but the production of chemical and metallurgical products during the two months remained below the average levels of the first quarter.
While the inflation rate in Germany fell slightly to two percent in June, the Bundesbank predicted that inflation would fluctuate around this level in the coming months.
Furthermore, Germany's Macroeconomic Policy Institute (IMK) said in a report that if the US government goes ahead with its plan to impose 30 percent tariffs on EU goods starting August 1, it will significantly impact the German economy.
The report warned that once the US tariffs take effect, they could significantly curb Germany's economic growth in 2025, with growth in 2026 also forecast to slow to around 1.2 percent.
While the German economy will face impacts, the United States could suffer more severe economic losses, the report noted.
The report predicts that consumer prices in the United States will rise due to tariffs, leading to a restraint in consumer spending. Furthermore, under inflationary pressures, US monetary policy may remain tight, further hampering the country's economic growth.
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