A Foggy Economic Horizon for Germany
Trade deficit escalates - customs conflict hinders economic recuperation
Wiesbaden/Frankfurt - Germany commenced its second quarter with a mediocre performance; industrial production waned, and exports dwindled due to the escalating trade spat with the US. The future looks unclear - the Bundesbank has slashed its economic projection, predicting that Germany could experience its third consecutive year without growth by 2025. However, select economists detect positive signs hinting at a potential turnaround.
In April, German exporters, especially those trading with the US, experienced a notable slowdown, as per preliminary figures from the Federal Statistical Office: Despite U.S. President Donald Trump's XXL tariff announcement in April, exports to the US still increased. However, they dropped to their least since October 2024 at 13 billion euros, marking a 6.3% decrease compared to April 2024.
Dirk Jandura, president of the Federation of Wholesale, Foreign Trade, and Services (BGA), commented, "The aftermath of US trade policy has now hit us. The EU must swiftly engage in proactive negotiations with our principal trading partner to find solutions. Without the US, things won't work."
Just a few days ago, Washington escalated the conflict further: Trump ordered a doubling of tariffs on the import of steel and aluminum into the US, from 25 to 50 percent.
Annual Trade Balance Maintains a Positive Stance
German companies exported goods worth 131.1 billion euros in April, witnessing a 1.7% decline from March 2025 and a 2.1% decrease compared to April 2024. Imports into Germany amounted to 116.5 billion euros, climbing 3.9% from the previous month and 3.8% compared to a year ago.
In the first quarter, exports even inched up: Business activity increased due to the expected stricter US tariff policy. According to calculations by the Wiesbaden statisticians, this led to a slight increase in exports of 0.2% for January to April.
US Tariffs Impact Industrial Production
Nevertheless, industrial production in Germany dropped again in April after a robust March, decreasing by 1.4% from the previous month. The increase in March was also weaker than initially calculated at 2.3%.
Sebastian Dullien, scientific director of the Institute for Macroeconomics and Economic Research at the Hans-Boeckler-Foundation, insists that the declines in exports and production are not cause for undue concern: "The trends suggest that the industrial sector is stabilizing and we might be nearing a beneficial turning point."
Commerzbank's analyst Ralph Solveen believes in better times for the German economy. He points to increased order numbers and the uptick in the Ifo business climate index: "Therefore, we anticipate the German economy to recover in the subsequent quarters, despite higher US tariffs and structural challenges faced by the German economy preventing a strong upsurge."
Bundesbank: Recovery Delayed
In the first quarter, fears of higher tariffs ignited the German economy: With 0.4% growth from the previous quarter, it was double the initial estimate provided by the Federal Statistical Office. However, the expected recovery in 2025 will not materialize, according to the Bundesbank.
Bundesbank President Joachim Nagel states, "New U.S. tariffs and ambiguity surrounding US policymaking initially dampen economic growth. This affects the German industry at a time when it was attempting to recuperate after a prolonged period of weakness."
Tough Times Ahead for "Made in Germany"
Especially Germany's exporters must brace themselves for difficult times: The Bundesbank anticipates a significant decline in exports this year due to U.S. trade policy, with minimal improvement expected by 2026.
Furthermore, the euro's sharp appreciation against the dollar due to unpredictable US policy weakens Germany's export industry's competitiveness even further: The strengthening of the common currency increases the cost of products from eurozone companies on global markets - and this at a time of escalating competition from China.
DIHK's foreign trade head, Volker Treier, concurs: "German companies abroad are grappling with deteriorating conditions and growing uncertainty in nearly all global regions."
Economic Boost through Billion-Euro Initiatives
Consequently, the revival of the German economy is shifting to the coming years, with government billions invested in defense and infrastructure expected to serve as catalysts. The Bundesbank forecasts a 0.7% increase in real GDP (BIP) in 2026 and a 1.2% surge in 2027. The erratic course of US President Trump remains the most significant uncertainty factor.
[1] Bundesbank forecast predicts a recovery in the German economy from 2026, driven by increased government spending on defense and infrastructure.
[2] Some economists have lowered Germany's growth forecast for 2025 to 0%.
[3] The European Commission anticipates moderate growth in the euro area but suspects Germany's performance will be less favorable due to trade uncertainties and broader global economic pressures.
[4] The German Economic Institute (IW) forecasts a contraction in Germany's economic output by 0.2% in 2025, largely due to U.S. trade policies, global uncertainties, and low investment levels.
[1] Despite the predicted recovery, the German industry, particularly the export sector, faces a challenging financial landscape due to the escalating trade spat with the US.
[2] The ongoing trade tensions between Germany and the US, coupled with the uncertainty surrounding US policymaking, has led some economists to lower their growth projections for the finance sector, with some predicting stagnation in 2025.
