OECD Downgrades Germany’s Growth Forecast for 2025

Germany’s economy remains stagnant in 2025 amid tariff strain and weak investment, with only modest growth expected in 2026.

Germany’s economy is projected to grow by 0.3% in 2025 and by 1.1% in 2026, according to the OECD’s latest outlook. This marks a slight downgrade (-0.1 percentage point) from prior forecasts, reflecting persistent weaknesses in demand, investment constraints, and external trade pressures.

Global Context: Emerging vs. Mature Economies

Globally, the OECD notes that emerging markets are showing more resilience than expected in early 2025. It now forecasts 3.2% global growth this year, up from its June projection, though it expects that growth to ease in 2026. Germany, by comparison, lags behind many OECD peers.

U.S. Tariffs Begin to Bite

A major factor weighing on Germany and other export-oriented economies is the increase in U.S. import tariffs: the effective rate has climbed to 19.5%, the highest since 1933. The full impact of these trade barriers is not yet fully reflected in current growth data but is forecast to reduce U.S. growth from approximately 2.8% in 2024 to near 1.8% in 2025 and further to 1.5% in 2026.

Where Germany Is Struggling

• Domestic demand remains weak: business investment has been held back by trade policy uncertainty and supply chain disruptions.
• Exports are being hit by elevated global trade barriers and demand slowdowns abroad, especially from major partners.
• Consumer sentiment and inflation are also suppressing spending; though inflation is easing, real wage gains are modest.

Hope for Recovery in 2026?

OECD projections suggest 2026 could be a better year. If global trade pressures ease, inflation continues to fall, and investment conditions improve, Germany could see more meaningful growth. Expected drivers include private consumption (supported by stable wages), public infrastructure spending, and possibly greater investment, once uncertainty around trade policy decreases.

Why did the OECD drop Germany’s growth forecast for 2025?

Largely due to sluggish export performance, uncertainty from U.S. and global tariffs, and weaker investment. Those factors weigh heavily on Germany’s export-dependent sectors.

Are other countries in the OECD faring better?

Yes. Emerging and developing economies are expected to grow more strongly in 2025. Global growth was revised upward to ~3.2% for 2025, although many of the risks from trade tensions and inflation remain.

What risks could derail the projected 2026 recovery?

Key risks include sustained trade tensions (especially U.S. tariff policy), slower global demand, renewed inflation or energy price shocks, and uncertainty in investment. Domestic policy uncertainty also looms.

In summary,Germany continues to lag its peers with a weak growth outlook for 2025 and only modest improvement expected in 2026. While emerging economies pull ahead, Germany must contend with external headwinds, especially from trade barriers, and internal constraints. The way forward depends heavily on how global trade and tariff risk evolve and whether domestic policy can rein in uncertainty and stimulate investment. If those conditions align, Germany could regain momentum next year; if not, recovery may remain elusive.

Source: OECD