The head of Germany’s central bank has warned that U.S. tariffs on imported goods could tip Europe’s largest economy into another recession, adding to the country’s ongoing economic struggles.
Joachim Nagel, president of the Deutsche Bundesbank, said in an interview with the BBC that if tariffs remain in place, “we could expect maybe a recession for this year.” Without them, the bank expects the economy to stagnate but still post modest growth of around 0.2%.
Germany has already suffered two consecutive years of economic contraction, weighed down by sluggish exports, high energy costs, and weaker global demand. As one of the world’s most export-dependent economies, it is particularly vulnerable to trade disruptions, and Nagel argued that tariffs are “definitely not a good idea.”
Impact of U.S. tariffs
President Donald Trump’s decision to impose a 25% tariff on steel and aluminum imports reignited transatlantic trade tensions. In response, the European Union has announced retaliatory tariffs on a range of U.S. products, which will take effect on 1 April.
Nagel described Trump’s approach as “economics from the past” and backed the EU’s countermeasures, arguing that “if something is working against you, you can’t accept a policy like this.” However, he suggested that as costs rise, the U.S. might reconsider its position. “The price that has to be paid will be highest on the side of the Americans,” he said.
Germany’s export-driven economy is particularly exposed to tariffs, as it relies heavily on foreign markets. In 2023, exports of goods and services accounted for 43.4% of Germany’s GDP, with the U.S. ranking as its largest export destination. The country’s automotive sector—home to BMW, Mercedes-Benz, Volkswagen, and Audi—is among the most at risk, as Washington has hinted at expanding tariffs to include European cars.
Rising costs for German consumers
The effects of the trade dispute are already being felt. Dirk Jandura, head of Germany’s BGA federation of wholesale, foreign trade, and services, warned on Wednesday that German consumers could face higher prices on American products such as orange juice, bourbon, and peanut butter.
Despite these pressures, Nagel rejected claims that Germany is the “sick man of Europe,” pointing to the country’s strong industrial base and small-to-medium-sized enterprises. However, he acknowledged that the current economic climate is challenging. “When you are exposed to an export-oriented model, then you are more exposed in a situation where tariffs are going up and there are so many uncertainties, so many unknowns,” he said.
Fiscal policy shift amid ‘tectonic changes’
Beyond the trade dispute, Germany is undergoing a significant shift in fiscal policy. The government recently moved to loosen its strict debt limits to allow for increased spending on defense and infrastructure. Nagel called the decision an “extraordinary measure for an extraordinary time,” citing geopolitical risks and economic stagnation.
“The whole world is facing tectonic changes, which makes the current situation very different from those seen in the past,” he said, adding that the shift would provide “a stability signal to the market” and allow Germany to navigate its economic challenges over the next few years.
