German central bank cuts growth forecasts as headwinds intensify

FRANKFURT, Germany — Germany's central bank on Friday sharply downgraded its growth forecasts for next year and 2026, predicting a prolonged period of weakness for Europe's biggest economy as it battles multiple headwinds.

From a manufacturing slowdown and weak export demand to heightened political uncertainty at home and the risk of renewed trade tensions under US President-elect Donald Trump, the German economy is facing a perfect storm.

The Bundesbank forecast output will grow a meagre 0.2 per cent in 2025, down from a forecast in June of a 1.1 per cent expansion. For 2026 it forecast growth of 0.8 per cent, down from a 1.4 expansion expected previously.

The estimates are substantially worse than the last projections from the government released in October, and will ring alarm bells among policymakers who had hoped for a strong rebound starting next year.

"The German economy is not only struggling with persistent economic headwinds, but also with structural problems," said Bundesbank chief Joachim Nagel, as he unveiled the bank's latest six-monthly forecast.

As widely expected, the central bank also cut its forecast for 2024 to a contraction of 0.2 per cent — which largely lines up with other recent estimates, including from the government.

The latest bleak forecast is a headache for Chancellor Olaf Scholz, who already faces an uphill battle to persuade voters to re-elect him at polls expected in February, seven months earlier than scheduled.

The country's economic malaise is a central campaign issue after Scholz's coalition government collapsed in November amid a bitter row over the budget and the best approach to reboot the world's third-biggest economy.