German exports are expected to decline by 0.3% in 2025 due to weakening competitiveness as well as growing geopolitical and trade tensions, according to the government's annual economic report published on Wednesday.

European governments and companies are on alert for possible new tariffs under the administration of U.S. President Donald Trump, while the question of how to revive Germany's flagging economy is central to a national election due on Feb. 23.

The annual government report said economy - still Europe's largest - is expected to grow by 0.3% this year, down from a previously forecast 1.1% and showing little sign of recovery from two years of contraction.

"Germany is stuck in stagnation," Economy Minister Robert Habeck said. "We see that the growth that we have been expecting for so long is also delayed this year."

In 2026, the recovery should arrive with growth of 1.1%, according to the government.

Habeck gave three reasons for the sharp cut in the government's forecasts for 2025: a growth initiative that could not be implemented due to the collapse of the ruling coalition, uncertainty surrounding to the snap elections, and geopolitical risks, particularly linked to Trump's reelection.

On Tuesday, Germany's BDI industry association said Trump's return to the White House and his tariff threats could cause the export-oriented German economy to shrink by almost 0.5% in 2025.

Habeck said tariffs have to be avoided, as they take a toll on investment and make goods more expensive. "This is threatening for an export nation like Germany, but it is overall to the detriment of the people in all economic areas," he said.
The minister also noted that Germany has had a more restrictive fiscal policy than other G7 countries, curbing growth.

"Germany has been systematically underinvesting," Habeck said, calling for a reform of the debt brake, which limits public borrowing to 0.35% of gross domestic product.

"We are not talking about an abolition or a lifting of the debt brake, but about a greater flexibility, a little more fiscal policy leeway," Habeck said.

Inflation is seen at 2.2% in 2025 and falling below the European Central Bank's target of 2% in 2026, the minister said.

The unemployment rate is to rise to 6.3% from last year's 6.0%.(Cay) Newsmaker23

Source: Investing.com