BERLIN (AP) — Germany’s economy is projected to stagnate in 2025, facing challenges from U.S. President Donald Trump’s tariffs and ongoing trade threats, according to a report released by the government’s panel of independent economic advisers. Despite being the largest economy in Europe, Germany has experienced minimal economic growth over the past five years, with its gross domestic product (GDP) shrinking in both of the previous two years.

The advisory panel, which provided its first forecast since the election of Chancellor Friedrich Merz in May 2025, indicated that the economy is expected to grow by only 1% in 2026, after a stagnation in the current year. Previously, the panel had estimated a growth rate of 0.4% for 2025.

This revised outlook aligns with the projections made by Germany’s previous government just a month earlier. Merz, who assumed office on May 6, 2025, has committed to reducing bureaucratic barriers, advancing digitalization, providing tax incentives for companies, and fostering more trade agreements within Europe.

Monika Schnitzer, head of the advisory panel, emphasized that “Trump’s tariff policy is increasing uncertainty and endangering economic growth worldwide.” However, she noted that a substantial investment package formulated by Merz’s coalition presents a significant opportunity for modernizing Germany's infrastructure, which could pave the way for a stronger growth trajectory in the coming year.

Historically, Germany has thrived on exporting high-quality engineered products, including industrial machinery and luxury vehicles. Nonetheless, it faces increasing competition from Chinese manufacturers, compounded by the adverse effects of U.S. tariffs that have introduced further risks to its export market. Notably, last year marked the first time since 2015 that the United States became Germany’s largest single trading partner, surpassing China as exports to the Asian nation declined.

This economic stagnation and the host of challenges confronting Germany underscore the broader implications of global trade dynamics and domestic policymaking under new leadership. The impact of external pressures, particularly those from the U.S., will likely continue to influence Germany's economic landscape as it seeks to navigate these turbulent waters in 2025 and beyond.