The Bundesbank says 2025 spells big trouble for German economy

It hasn't been a great year for Germany’s economy and 2025 isn’t likely to be much better, the Deutsche Bundesbank said today.

The German central bank slashed its growth forecast for next year to 0.2 percent, from the 1.1 percent it had predicted in June. It also said it now expected the economy to contract slightly this year — by 0.2 percent — when it had previously expected growth of 0.3 percent.

“The German economy is not only struggling with persistent economic headwinds, but also with structural problems,” said Bundesbank President Joachim Nagel, who also warned that Germany’s export-driven economy was particularly vulnerable to the rising risk of protectionism around the world.

The Bundesbank flagged that the labor market, which it had previously expected to sustain the post-pandemic recovery, is now also visibly weakening. Unemployment is already at its highest in four years, at 6.1 percent of the workforce, and a wave of layoff announcements in the manufacturing sector — most notably at automaker Volkswagen — has alarmed the political class and shaken consumer confidence.

“After many years of very favorable labor market figures, this deterioration appears particularly striking,” the Bank said, predicting a further decline in employment over the winter.

The Bundesbank dedicated a section of its report on the threat of trade tariffs by its largest export market, the U.S. It warned if the Trump administration went ahead with across-the-board tariffs as promised, Germany’s economy would “probably suffer considerably.” It saw a hit of between 1.3 and 1.4 percent to gross domestic product by 2027.