The German economy, Europe's largest, is bracing for what could be its third consecutive year without growth, a scenario unprecedented in the history of the Federal Republic. Initial signs of recovery in the first quarter of 2025, marked by a slight increase in industrial production, construction activity, and retail sales, have been overshadowed by the resurgence of trade tensions, particularly with the United States. The hope for a sustained economic turnaround has faded as the imposition of tariffs by US President Donald Trump threatens to derail the fragile progress.

Trade relations between Germany and the US have come under strain, with the latter being Germany's most significant trading partner ahead of China and the Netherlands. In 2024, bilateral trade amounted to approximately 253 billion euros, with German exports to the US accounting for over 161 billion euros, or about ten percent of total German exports. The aggressive 'America first' policy of the Trump administration has introduced a level of uncertainty not seen in decades, affecting not only trade but also financial markets.

While some sectors such as banking, insurance, pharmaceuticals, and software have shown resilience or even recorded profits, key industries like automotive and mechanical engineering are struggling. The European Central Bank (ECB) has responded to the easing inflation in the Eurozone by reducing deposit rates seven times since last June, currently standing at 2.25 percent. Further rate cuts in the summer could provide some relief but also reflect the broader challenges facing the economy.

The German government has revised its growth forecast for 2025 from a modest 0.3 percent increase to stagnation, a sentiment echoed by the International Monetary Fund (IMF). The situation is compounded by the 'XXL tariff package' and the unpredictable nature of US trade policy, which has been described by ECB President Christine Lagarde as a source of 'exceptionally high uncertainty.' As Germany navigates these turbulent waters, the prospect of the longest recession in its post-war history looms large, with no clear end in sight to the economic malaise.