German central Bank warns of risk from Trump imposed tariffs

Germany faces a particular risk from US tariffs, Bundesbank President Joachim Nagel has warned, as its heavy reliance on exports makes it one of the economies most vulnerable to US trade barriers, which could drag down growth for years to come, at a time when the German economy is already suffering from a persistent industrial recession.

In a speech on Monday, Nagel noted that the Bundesbank’s economic model showed that the German economy, which relies heavily on exports, would be most affected by any escalation in US trade barriers.

“Our economic output in 2027 will be about 1.5 percentage points lower than expected,” he said, noting that this would be a severe blow to the country’s economy.

According to the Bundesbank’s current forecast, the German economy is expected to grow by just 0.2% in 2025, rising to 0.8% in 2026.

Taking into account the impact of US tariffs, the German economy could face further contraction rather than recovery.

Although the United States seeks to protect its domestic industry by imposing tariffs on foreign imports, Nagel stressed that the US economy itself will be negatively affected by these measures.

“The loss of purchasing power and the higher costs of intermediate industrial inputs will outweigh any competitive advantages that American industry might achieve,” he said.

The Bundesbank noted that the impact of tariffs on inflation rates remains unclear, while some models showed the impact would be minor, others warned that trade escalation could lead to a significant increase in prices.

Nagel explained that retaliatory tariffs that Europe may impose will be reflected in consumers through higher prices, and that a weaker euro may increase the cost of imports, which will increase inflationary pressures.

Amid these challenges, the German economy remains facing a tough test in adapting to global trade shifts, amid fears that trade tensions between the United States and Europe could lead to further economic turmoil.

For his part, the head of the Italian Central Bank, Fabio Panetta, indicated that the entire global economy could be affected if all the tariffs promised by US President Donald Trump before the elections were implemented.

According to Panetta’s analysis, this could lead to a 1.5 percentage point decline in global growth, while US GDP could fall by 2 percentage points.

Panetta also noted that Chinese companies, which may be excluded from the US market due to these tariffs, will look for new markets in Europe, which could lead to increased competition and pressure on European producers, especially in key industrial sectors such as cars and technology.