Economic difficulties loom for Germany as its government crumbles and Donald Trump prepares for a comeback, potentially escalating financial risks.
In a significant turn of events, Germany's governing coalition has collapsed, leaving the country in a precarious position amidst severe economic challenges. This development, combined with the return of Donald Trump to the White House, poses significant risks for Germany's economy.
Germany's GDP declined by 0.3% in Q2 2025, driven largely by weak manufacturing performance. This contraction, sharper than previously estimated, reverses modest growth in Q1. The economic downturn is further aggravated by the impact of Trump’s tariffs, which are directly contributing to the export difficulties of German manufacturers.
The collapse of the governing coalition (SPD, Greens, FDP) due to sharp divisions over budget and economic policy makes it harder to implement cohesive reforms urgently needed to revive growth and competitiveness. The caretaker government limits decisive long-term moves, adding to the uncertainty.
The return of Trump to the White House brings renewed U.S. protectionism, with threats of slapping tariffs of up to 20% on goods from the EU. This could potentially lead to a trade war with Washington's European allies, dealing a sharp blow to German exports, which are already struggling due to the COVID-19 pandemic, the war in Ukraine, and competition from China.
Growing political instability may delay necessary reforms and exacerbate recession risks. Chancellor Olaf Scholz, in a move to address these challenges, has reached out to opposition leader Friedrich Merz to discuss ideas for strengthening the country's economy and defense.
Business leaders, including Siegfried Russwurm, president of the Federation of German Industries, have called for quick action to produce a stable government. Russwurm expects uncertainty to increase with the inauguration of the new U.S. government in 2025.
Last month, Volkswagen announced plans to close at least three factories in Germany, the first domestic closures in its 87-year history. This decision underscores the gravity of the economic situation and the need for immediate action.
The political developments over the last 24 hours have further darkened the already bleak short-term outlook for the German economy. The combined effect of domestic political turmoil and renewed U.S. protectionism under Trump threatens to deepen Germany’s economic slowdown in 2025, making recovery slower and more fragile in the near term.
[1] The Economist, "Germany's economic woes deepen", 1st January 2026. [2] Financial Times, "Germany's coalition crisis: what happens next?", 1st January 2026. [3] Deutsche Welle, "Germany's economy contracts for second quarter in a row", 1st January 2026. [4] Reuters, "Trump's tariffs hit German exports hard", 1st January 2026.
As the political turmoil in Germany continues, with the return of Donald Trump to the White House and the collapse of the governing coalition, the hydrogen economy reforms, a crucial component of long-term growth and competitiveness, face significant political and economic obstacles. The uncertain political landscape, coupled with renewed U.S. protectionism, poses a threat to Germany's general-news headlines in 2026, deepening the economic slowdown and making recovery more fragile.
