Germany’s exports are projected to shrink by 0.3% in 2025 due to declining competitiveness and geopolitical tensions, according to the government’s annual economic report released on Wednesday.

The report highlights concerns over potential trade barriers under a possible second term for US President Donald Trump while Germany grapples with economic stagnation ahead of a national election on February 23.

Europe’s largest economy is now forecast to grow by just 0.3% in 2024, down from an earlier projection of 1.1%. This marks a continued struggle following two years of contraction. Economy Minister Robert Habeck acknowledged the downturn: “Germany is stuck in stagnation.” Growth is expected to pick up in 2026, reaching 1.1%.

Habeck attributed the downgraded forecast to the failure of a government growth initiative, political uncertainty due to the snap elections, and global geopolitical risks, particularly Trump’s possible return. The BDI industry association warned that Trump’s tariff policies could shrink Germany’s export-driven economy by 0.5% next year.

Habeck stressed the need to prevent tariffs, which he said could stifle investment and raise prices. He also called for greater fiscal flexibility, arguing that Germany’s restrictive fiscal policies had hindered growth.

Inflation is projected to ease to 2.2% in 2025, dipping below the European Central Bank’s 2% target in 2026. However, unemployment is expected to rise to 6.3% from 6.0% last year.