German expert council forecasts stagnation for economy in 2025
BERLIN: Members of the German Council of Economic Experts (left to right) Martin Werding, Achim Truger, chairwoman Monika Schnitzer, Ulrike Malmendier and Veronika Grimm poses with the report after a press conference in Berlin, on May 21, 2025. -- AFP
BERLIN: The German Council of Economic Experts cut its forecast for Europe's largest economy on Wednesday, now expecting it to stagnate this year during a 'pronounced phase of weakness'. The academic body that advises the German government on economic policy had predicted the economy would grow 0.4 percent this year in previous forecasts published in November.
Germany has been the only member of the G7 advanced economies that failed to grow for the last two years, burdened by fiscal restraints and an industrial downturn. 'The unfavorable effects of the overall economic weakness phase on the labor market continue,' Veronika Grimm, a member of the council, told a press conference in Berlin. The number of unemployed people in Germany is approaching the 3 million mark for the first time over the last 10 years.
The tariffs announced by US President Donald Trump are expected to deal a major blow to its export-oriented economy. 'The German economy will be significantly influenced by two factors in the near future: US tariff policy and the fiscal package,' Monika Schnitzer, chairwoman of the council, said in a council statement on its forecast.
The US was Germany's biggest trading partner in 2024, with two-way goods trade totaling 253 billion euros ($284 billion). 'Even if it does indeed happen that tariffs are reduced, that Trump succeeds with his 'deal economy' and countries simply trade and the tariffs are not that high, he has managed to introduce enormous uncertainty into the system,' Ulrike Malmendier, another council member, told the press conference.
On the bright side, Germany approved in March a fiscal plan that includes a 500-billion-euro special fund for infrastructure investments, and largely removes defense investment from rules that cap borrowing. The fiscal package offers opportunities to return to a growth path, economists say. 'The effects of the financial package won't be noticed immediately and that's why this growth boost will only occur next year - it takes time,' Schnitzer told reporters. Starting in 2026, the new funds should spur investment in construction and equipment as well as government spending, the council said, forecasting 1.0 percent growth next year. — Reuters
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