Germany's economic outlook has taken a significant hit, with the Bundesbank forecasting a contraction in GDP of 0.2% for 2024, down from an earlier prediction of 0.3% growth. This grim outlook is compounded by a projected growth rate of only 0.2% for 2025, revised down from 1.1%. Slight improvements are anticipated in 2026 and 2027, with growth rates of 0.8% and 0.9%, respectively [beca92f1].
A key factor in this downturn is the unexpected decline in exports, which fell by 2.8% in October 2024, totaling 124.6 billion euros ($130.3 billion). Analysts had anticipated a smaller decline of 2%. Exports to the US saw a dramatic drop of 14.2% to 12.2 billion euros, while exports to China decreased by 3.8% to 6.9 billion euros, and exports to EU countries fell by 0.7% [aa91724f].
Robert Habeck, Germany's Economy Minister, expressed concerns about the country's economic model, stating it is 'cornered' due to underinvestment and competitive pressures from other economies. He highlighted insufficient investment in infrastructure, tax systems, and workforce skills as detrimental to economic performance [71bf0ed2].
Bundesbank President Joachim Nagel has pointed to ongoing structural issues and challenges within the industrial sector as significant contributors to the bleak economic outlook. The political instability following the collapse of Chancellor Olaf Scholz's 'traffic light' coalition and the dismissal of Finance Minister Christian Lindner has further exacerbated uncertainty [3bd34017].
Concerns are also mounting regarding the potential return of Donald Trump to the White House, with analysts warning that new tariffs could lower Germany's GDP forecast by 1.3% to 1.4% by 2027, intensifying the economic pressures already at play. The Ifo Institute estimates potential future tariffs could cost Germany $34.6 billion and lead to a 15% drop in exports to the US [71bf0ed2][beca92f1].
Inflation is projected to slightly decrease from 2.5% to 2.4% in 2025, with expectations of a gradual return to 2% from 2026 onwards. This report underscores Germany's vulnerability due to its reliance on exports, making the economic outlook even more precarious as analysts continue to monitor these developments closely [3bd34017].
The machinery and equipment sector has been particularly hard hit, with orders decreasing by 7.6%, and the automotive industry also reported a decline of 3.7%. Commerzbank economist Ralph Solveen emphasized the low order backlogs and the absence of indicators suggesting a turnaround in the manufacturing sector, reflecting the complexities within Germany's economy [5b8b3cb4].
Looking ahead, the VDMA trade group has warned of a turbulent 2025 for Germany's machine-tool makers, predicting a production decline of 2% following an 8% drop in 2024. The political landscape, especially with the upcoming snap federal election scheduled for February 23, 2025, is expected to exacerbate these challenges [59d86e72][71bf0ed2].