Bundesbank slashes growth projection and sounds alarm over trade war

Germany faces another year of economic stagnation even in a best-case scenario, the Bundesbank warned on Friday, as it slashed its 2025 growth projection to just 0.1 per cent and added that a trade war with the US could push Europe’s largest economy into downturn.

If President-elect Donald Trump carried out his threat to impose blanket tariffs on all US imports, this could knock between 0.2 and 0.6 percentage points off GDP next year, the Bundesbank said.

The Bundesbank modelled a scenario where the US imposed a 10 per cent tariff on European goods and a 60 per cent levy on Chinese exports, in line with Trump’s threats during his presidential campaign.

The recent projection, published on Friday in the Bundesbank’s monthly update for December, is much more gloomy than its June prediction.

Back then, the central lender foresaw a mild recovery with 1 per cent GDP growth.

In the months that have followed, it has written off any meaningful recovery in buyer spending next year and now expects a decline in corporate fund too.

Even the once gravity-defying labour economy is poised to falter next year, with unemployment rising to the highest level in more than a decade and wage growth slowing down.

“The German economy is struggling not just with persistent cyclical headwinds but also with structural problems,” said Bundesbank president Joachim Nagel, pointing to fading productivity growth and the crisis in large parts of Germany’s manufacturing industry.