The German central bank has sharply reduced its growth forecasts for next year and 2026, predicting a prolonged period of weakness for Europe’s largest economy as it battles multiple headwinds.
Germany’s economy is facing a perfect storm, from a slowing manufacturing sector and weak export demand to rising domestic political uncertainty and the risk of new trade tensions under US President-elect Donald Trump. The Bundesbank then forecast that output will grow by a paltry 0.2% in 2025, down from its June forecast of a 1.1% expansion. It forecast growth of 0.8% for 2026, down from the 1.4% expansion forecast previously.
The estimates are substantially worse than the latest government projections released in October and sound a wake-up call for those who were hoping for a strong recovery starting next year.
“The German economy is not only grappling with persistent headwinds, but also with structural problems,” Bundesbank head Joachim Nagel said.
As widely expected, the central bank also cut its forecast for 2024 to a contraction of 0.2%, in line with other recent estimates, including from the government.
The latest grim predictions are a headache for Chancellor Olaf Scholz, who already faces an uphill battle to convince voters to re-elect him in elections scheduled for February, seven months earlier than expected.
The country’s economic malaise is a central theme of the election campaign, after Scholz’s coalition government collapsed in November following a bitter dispute over the budget and the best approach to reviving the world’s third-largest economy.