New US tariffs would hit Germany particularly hard: Bundesbank’s Nagel

FRANKFURT - Germany would be particularly hard hit by US protectionism and trade tariffs, Bundesbank president Joachim Nagel said, worsening an already gloomy outlook for Europe’s biggest economy.

“Our high focus on exports makes us particularly vulnerable to falling foreign demand,” he said on Feb 17 in a speech in Frankfurt. “The increased uncertainty is an additional obstacle.”

Mr Nagel, who is also a member of the European Central Bank’s interest rate-setting governing council, cited Bundesbank estimates revealing that output in Germany in 2027 could be almost 1.5 per cent below the baseline scenario due to a US policy shift.

The German economy, which is primarily being weighed down by its struggling manufacturing sector, already saw a second consecutive year of contraction in 2024 and could shrink again in 2025 – a streak not seen before this century.

The Bundesbank predicts growth of just 0.2 per cent in 2025, and has already warned another drop in gross domestic product is possible if US President Donald Trump fully implements trade levies on China and others. On Feb 14, he said he plans to impose tariffs on imported cars around April 2.

Mr Nagel said “there are no winners” from protectionism as it “leads to welfare losses in all affected countries” – even if Germany would be affected more than others.

The effects on consumer-price growth would be less clear, he said. “Inflation could be stoked, though the extent is very uncertain,” he said, adding that he still expects it to reach the 2 per cent target “soon”.

The economy’s misery is also an overriding theme ahead of the snap elections on Feb 23, in which German Chancellor Olaf Scholz looks set for defeat by Mr Friedrich Merz, who leads the conservative CDU/CSU bloc and promised growth friendly policies. BLOOMBERG