The German Bundesbank announced Friday that sluggish growth in Europe’s largest economy would persist far longer than previously expected. The central bank has sharply reduced its economic forecasts for 2025 and 2026, signaling ongoing challenges.
- 2024 Forecast: Economic output is now expected to contract by 0.2%, a steep downgrade from the 0.3% growth forecast in June.
- 2025 Forecast: Growth is predicted to reach just 0.2%, down from 1.1% projected earlier.
- 2026 Forecast: Growth is now forecast at 0.8%, significantly lower than the previous estimate of 1.4%.
“The German economy is not only battling with persistent economic headwinds but also with structural problems,” Bundesbank President Joachim Nagel explained.
Key Challenges Impacting Growth
Nagel highlighted the primary areas of concern:
- Industry and Exports: Persistent weakness in industrial output and declining exports continue to weigh heavily on Germany’s economic performance.
- Investment: Investment levels remain subdued due to global uncertainties.
- Private Consumption: While private consumption is expected to grow steadily, it will do so at a slower pace, partly due to increasing concerns about labor market stability.
Exports Face New Pressures
Germany’s export sector received more bad news on Friday.
- October Decline: Exports fell by 2.8% compared to September, reaching a value of €124.6 billion. This marks the sharpest monthly drop in 2024. Year-over-year, exports also declined by 2.8%.
- Global Risks: The Bundesbank cautioned that exports are expected to recover only gradually, with global protectionism posing a significant threat.
Protectionism and Global Uncertainty
The looming return of U.S. President-elect Donald Trump and his threats of widespread tariffs have heightened concerns for German exporters.
“The biggest uncertainty factor for the forecast at the moment is a possible increase in protectionism globally,” warned Nagel.