German Economy Stagnates in 2025: No Increase in Inflation Risk
Research
23.04.2025
ZEW Financial Market Survey Predicts Economic Stagnation in Germany and an Increasing Risk of Inflation for the USA
The generational change in US trade policy has shaken global markets. Following the announcement in February 2025 of tariffs of 25 per cent or more on steel and aluminium, even more comprehensive import tariffs were added on 2 April, known as “Liberation Day”. These include a general base tariff of 10 per cent on all imports and additional “reciprocal tariffs” on certain countries, which can be as high as 125 per cent.
The possible effects on prices and the risk of recession in Germany, the eurozone and the US were subject of the special question included in the ZEW Financial Market Survey. The surveyed financial market experts assume that Germany's economy will continue to stagnate in 2025. Although a recession in Germany is not considered unlikely, the respondents currently see no increased risk to price stability, either in Germany or in the eurozone. However, the results paint a different picture for the US.
“The turbulent protectionist trade policy pursued by the US could not only impair global trade, it could also have serious consequences for price stability in the US,” emphasises Dr. Lora Pavlova, researcher in ZEW’s Research Unit “Pensions and Sustainable Financial Markets” and project leader of the ZEW Financial Market Survey. “An inflation rate of 2.3 per cent is expected for the coming years, which is just above the ECB’s decisive two-per-cent mark. By contrast, the US inflation rates expected for the years 2025 and 2026 – 3.2 per cent and 3.1 per cent, respectively – clearly exceed the Fed’s target value. At 2.9 per cent in 2027, expectations imply sustained pressure on US price levels in the medium term.
Stagnating economy in Germany
Financial market experts expect average economic growth of 0.1 per cent for Germany. Around 30 per cent of those surveyed expect a third consecutive year of recession for Germany. The growth outlook for the eurozone, on the other hand, is somewhat more optimistic: The EU economy is expected to grow by 0.7 per cent in 2025. The growth projections for the US are remarkable: Despite the tariff policy, experts expect real GDP growth of 1.5 per cent for 2025.
Increase in global economic uncertainty
“The current US trade policy is causing a massive increase in global economic uncertainty due to its dynamic nature. This is particularly evident in the respondents' growth expectations for the USA,” explains ZEW President Professor Achim Wambach, PhD. Although they are positive on average, the respondents are hardly in agreement on this point. For 2025 in particular, the forecasts show a standard deviation of around one percentage point. In the most pessimistic scenario, the US economy could therefore shrink by minus 2.5 per cent in 2025.
About the survey
The ZEW Financial Market Survey has been conducted since December 1991. Participants are asked monthly about their expectations concerning the development of major international economies, including Germany, the eurozone, the United States and China. In total, the panel consists of about 350 financial analysts from banks, insurance companies and selected corporations, specifically from the finance, research and economics departments as well as the investment and securities departments. Most of the participants work in Germany.
The financial experts are asked about their expectations on a six-month horizon regarding the development of the economy, the inflation rate, short- and long-term interest rates, equity prices and exchange rates. In addition, they are asked to assess the earnings situation in 13 German sectors. Besides a fixed survey section, special questions on current topics are included on a regular basis. The ZEW Indicator of Economic Sentiment, which has established itself as an early indicator of economic development (“ZEW Index”), is calculated from the expectations of financial market experts on the development of the economic situation in Germany. The results are published and analysed in detail in the monthly ZEW Financial Market Report.
