Germany's Central Bank Has Slashed Its Growth Forecast For The Country

In mid-December, the Bundesbank slashed its forecasts for the German economy over the next two years, predicting growth of just 0.2% in 2025, down 0.9 percentage points from its previous forecast of 1.1%. The Bundesbank also forecast that German GDP would grow by 0.8 percent in 2026, down from a previous estimate of 1.4 percent.

Joachim Nagel, president of the Bundesbank, noted that the German economy is not only facing persistent economic headwinds, but also structural problems, which are affecting industry, exports and investment. He said German private consumption would still grow at a solid pace, but at a slower pace than expected because of growing concerns about the Labour market. Nagel also warned that Germany's export-oriented economy is particularly vulnerable to the rising risk of global trade protectionism. The German central bank predicts that if U.S. President-elect Donald Trump imposes tariffs across the board as promised after taking office, the German economy will suffer significant losses, with an estimated loss of 1.3 to 1.4 percent of economic output by 2027.

In terms of inflation, the Bundesbank believes that the harmonized consumer price index will remain at a high level, falling only from 2.5% to 2.4% in 2025. Germany is not expected to get inflation under control at around 2 per cent until 2026. In addition, on the labor market, the Bundesbank said that the current unemployment rate in Germany is 6.1%, which has reached the highest level in four years, and has shaken German consumer confidence to some extent.

Regarding the German economy this year, the Bundesbank forecasts that German gross domestic product will decline by 0.2 percent in 2024, down from the 0.3 percent growth forecast in June. In addition, the German think tank German Institute for Economic Research in early December report also forecast that the German economy will shrink by 0.2% this year, and only a small growth of 0.1% in 2025, lower than the German central bank forecast of 0.2%.