Germany’s economy is expected to stagnate this year amid rising pressure from U.S. President Donald Trump’s tariffs and trade threats, according to a report released Wednesday by the country’s panel of independent economic advisers.

Although Germany has the largest economy in Europe, it has not experienced meaningful growth over the past five years, with its gross domestic product contracting in both of the last two years.

In its first forecast since Chancellor Friedrich Merz’s new government assumed office earlier this month, the advisory panel projected that the economy will remain stagnant this year, followed by a modest 1% growth in 2026. This marks a downgrade from its previous forecast in November, which anticipated 0.4% growth in 2025. 

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The updated outlook aligns with the forecast issued by Germany’s previous government about a month ago.

Chancellor Merz, who assumed office on May 6, has committed to reducing bureaucratic hurdles, enhancing digital infrastructure, offering tax incentives to businesses, and supporting new European trade agreements.

“Trump’s tariff policies are fueling uncertainty and threatening global economic growth,” said Monika Schnitzer, head of the advisory panel. However, she noted that a substantial investment package from Merz’s coalition “creates opportunities for infrastructure modernization in Germany and a shift back to a stronger growth trajectory,” offering hope for improved performance in the coming year.

Germany, long a powerhouse in global exports, especially in sectors like industrial machinery and luxury automobiles, has come under growing competitive pressure from Chinese firms. Now, Trump’s trade measures are presenting an additional threat to German exports. 

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In 2024, the United States overtook China as Germany’s largest single trading partner for the first time since 2015, amid a decline in exports to China.