Germany’s economy is expected to stagnate in 2024, according to a revised forecast released Wednesday by the German Council of Economic Experts. The advisory body, which counsels the

government on economic matters, had previously projected modest growth of 0.4% but now warns the country is facing a “pronounced phase of weakness.”

Germany, the only G7 nation whose economy has failed to grow over the past two years, continues to struggle with tight fiscal policies and a slump in industrial output.

Adding to the pressure, newly announced tariffs by U.S. President Donald Trump pose a threat to Germany’s export-heavy economy. “The German economy will be significantly influenced by two factors in the near future: U.S. tariff policy and the fiscal package,” said Monika Schnitzer, chair of the council.

The United States remained Germany’s largest trading partner in 2024, with goods trade between the two nations totaling €253 billion ($284 billion). Despite the possibility that actual tariffs may be lower than feared, the uncertainty surrounding trade has already disrupted the economic outlook. “Even if tariffs are ultimately reduced, Trump’s approach has introduced massive uncertainty into the system,” noted council member Ulrike Malmendier.

Delayed benefits from fiscal stimulus

On a more optimistic note, Germany’s recently approved fiscal package could pave the way for a recovery, although its effects will take time to materialize. The plan includes a €500 billion fund for infrastructure projects and exempts defense spending from existing borrowing limits.

Schnitzer explained that this stimulus will likely begin to lift growth in 2025, with the council projecting a 1.0% expansion next year. “The effects won’t be felt immediately—it takes time to roll out,” she said, urging quick budget approvals and clear spending plans.

Germany’s finance ministry is already working on budgets for 2025 and 2026 to ensure funds are efficiently allocated.

The council also expects private consumption to pick up in 2026 as real disposable incomes rise. However, persistent uncertainty could temper consumer spending, with only a slight decrease in the savings rate anticipated.

Inflation outlook and monetary policy risks

Inflation is forecast to ease to 2.1% in 2024 and 2.0% in 2025, moving toward the European Central Bank’s target. Yet, trade tensions and expansive government spending could create inflationary pressures. “Germany’s fiscal expansion might raise inflation expectations and prompt a tighter ECB policy,” warned council member Veronika Grimm. Photo by Foto-Kasa Fue, Wikimedia commons.