Rising Fears of a Third Recession Year in Germany due to Escalating Trade Wars
Experts Worry About a Third Straight Year of Economic Downturn, Attributed to Ongoing Trade Conflicts
Engage in a candid, uncensored discussion as we delve into the potential fallout of the trade war initiated by US President Donald Trump, which increases the likelihood of a second consecutive recession in Germany's economy, according to economists.
Marc Schattenberg and Robin Winkler of Deutsche Bank Research admit in an analysis that the new federal government might struggle to mitigate the immediate trade shock. If the announced "reciprocal" US tariffs become permanent, the previous growth forecast of 0.3 percent for 2025 may prove too optimistic. "Overall, the economic risks for 2025 are pointing towards a third consecutive recession year," the two experts caution.
In Q4 of 2024, Europe's largest economy shrank by 0.3 percent and further contracted by 0.2 percent in 2024. Carsten Brzeski, ING Chief Economist, warns that the probability of a real technical recession in Germany has increased due to the trade war. A decline in gross domestic product of 0.2 percent in Q4 of 2024 is a possible indicator, and it could decrease in Q1 and Q2 of 2025.
Two consecutive quarters of contraction qualify as a technical recession. "That means the whole year is not salvageable, even if a new federal government takes action," Brzeski admits. The Union and SPD have agreed on an infrastructure package worth 500 billion euros in their coalition negotiations, but most experts believe it won't boost the economy until 2026.
The German Association of Chambers of Industry and Commerce (DIHK) already forecasts a historically gloomy decline for the current year due to the massive trade conflict. Eric Schweitzer, DIHK President, revealed to the news agency Reuters that the consequences of this trade war, which the USA started, will lead to a decline in economic growth, higher inflation, and job losses in the USA and Europe.
The ongoing trade tensions, including the US-China trade war, have severe implications for the European economy, particularly for major economies like Germany. The European economy is expected to experience a weaker-than-expected recovery, and growth is projected at 1.0% for 2025 for the eurozone, down from a previous forecast of 1.3%[1]. Sectors like automotive and pharmaceuticals could be particularly affected by tariffs, given their significant trade with the US.
Germany's exports to the US might decline significantly due to tariffs, with estimates suggesting a drop of up to 20% in certain sectors like automotive. Escalating trade tensions and geopolitical instability remain significant risks for Germany and the EU[1][2][4]. In the face of these challenges, it's advisable to stay vigilant and adapt to these unpredictable economic shifts.
- In light of the potential third consecutive recession year in Germany due to escalating trade wars, it may become necessary for the federal government to review and update their community policy and employment policy to better cushion the impact on the economy.
- Given the uncertainty surrounding the escalating trade wars and their potential economic consequences, it is essential for companies to reassess their employment policies and consider alternate strategies for maintaining their workforce, such as recruiting locally or adopting flexible work arrangements.
- As the likelihood of a recession increases, politicians like Eric Schweitzer, the president of the German Association of Chambers of Industry and Commerce (DIHK), may advocate for more proactive trade policies, potentially leading to changes in the nation's H2 employment policy and engagement with companies via platforms like WhatsApp.
