Forecasts by Bundesbank analysts for Germany’s economic growth keep investors on edge. Market participants wonder whether the eurozone's powerhouse has broken down.

The central bank predicts a 0.2% contraction in the German economy for 2024, a sharp revision from its earlier forecast of 0.3% growth.

The outlook for 2025 is not much brighter: Bundesbank anticipates growth of only 0.2%, much lower than the previous forecast of a 1.1% increase. This revision accounts for the looming introduction of new US trade tariffs.

According to Bundesbank President Joachim Nagel, protracted economic troubles and structural problems in Germany's industrial sector are hampering robust economic growth. Previously, the Bundesbank chief warned about the potential negative impact of Donald Trump’s tariffs on Germany’s GDP in 2025.

The central bank forecasts stagnation in the German economy this winter, followed by a gradual recovery in spring. It expects GDP growth of 0.8% in 2026 and 0.9% in 2027.

However, Bundesbank analysts caution that downside risks are significant due to the current trade policies of US President-elect Donald Trump, which could exacerbate Germany’s vulnerabilities given its heavy reliance on exports.

According to the Bundesbank’s report, the national economic output for 2027 could range between 1.3% and 1.4%, which is lower than the baseline scenario. This scenario assumes changes in US policies. Analysts also warn that a trade conflict in 2025 could result in stagnation or another contraction of Germany's GDP.

Regarding inflation, the Bundesbank has revised its forecasts downward compared to its June projections. The central bank now expects inflation in Germany to remain high next year, albeit with a downtick to 2.4% from the previous estimate of 2.5%.

The central bank reckons that inflation will gradually settle at about the 2% target, potentially maintaining this level in the coming years as a result of moderate monetary policy easing and reduced labor costs.