German central bank does not expect economic growth in 2025

The German Bundesbank expects the economy to stagnate in 2025 after two years of recession in the country. This is stated in the new six-month forecast of the central bank, released at the end of last week.

Thus, the regulator has downgraded its December expectations, according to which Germany’s GDP growth was expected to reach 0.2% this year.

As noted, the recovery of the German economy is delayed due to uncertainty over international trade policy, and fiscal measures are only gradually beginning to support it.

According to Bundesbank President Joachim Nagel, new US tariffs and uncertainty about future US policy will initially slow economic growth. This hits German industry at a time when it is beginning to stabilize after a long period of weakness. However, a sharp increase in government spending on defense and infrastructure should provide a noticeable boost to demand and GDP growth from 2026 onwards. According to the new forecast, inflationary pressures in Germany also continue to decline.

The central bank predicts that the country’s GDP will grow by 0.7% in 2026 (December expectations – 0.8%), and by 1.2% in 2027 (0.9% in December).

Bundesbank experts point out that the short-term prospects are primarily overshadowed by the protectionist trade policy of the United States. In general, German exports will decline significantly in 2025 and grow only slightly in 2026. The decline in industrial production due to tariffs is cooling the labor market and slowing wage growth.

“Starting in 2026, expansionary fiscal policy and the reduction of the inhibitory effect of US economic policy on growth will lead to a marked recovery in the German economy,” the regulator said in a statement.

Inflation growth will slow to an average annual rate of 2.2% in 2025. In 2026, it is expected to temporarily decline to 1.5% due to energy prices, and then rise again to 1.9% in 2027.

The European Central Bank has maintained its estimate of eurozone GDP growth this year at 0.9%. Expectations for the next year have been revised to 1.1% (previously 1.2%). In 2027, the eurozone economy is expected to grow by 1.3%.