German Economy Faces Steeper Contraction in 2025 Due to U.S. Tariffs

Germany’s economy is expected to contract more than previously anticipated in 2025, primarily due to the impact of U.S. tariffs on the nation’s export-driven economy, according to a new forecast from the BDI industry association. The BDI revised its 2025 outlook, now projecting a 0.3% contraction, a significant downgrade from its earlier estimate of 0.1%.

This contraction would mark Germany’s third consecutive annual decline, a worrying trend for Europe’s largest economy, which has struggled with various challenges, including external tariff pressures. The U.S. was Germany’s largest trading partner in 2024, with two-way goods trade totaling €253 billion ($288.02 billion), underscoring the critical importance of this economic relationship.

Despite the gloomy forecast, BDI President Peter Leibinger expressed cautious optimism, stating that there is a “real chance of an upturn” if the German government continues to pursue its current policy path. He highlighted recent measures such as tax relief and energy price reductions as positive steps but emphasized that further reforms were needed to bolster economic resilience.

Leibinger also noted the importance of strengthening Germany’s defense capabilities, offering the German industry’s support in this area, in line with the government’s broader strategic objectives.

While the short-term outlook remains challenging, the BDI’s call for continued reform and government action suggests that Germany may still have opportunities for recovery in the medium term, provided the right measures are implemented.