Germany faces recession and tariffs due to global factors, impacting economy and stock market

From Morningstar: 2025-04-25 10:42:00

Germany’s economy faces challenges: high energy costs from the Ukraine war, weak demand from China, and competition from Asian products hinder growth. US President Trump threatens new tariffs on German exports, including cars. Friedrich Merz is expected to become Chancellor in May, with tariffs set to resume after a 90-day suspension.

The German economy is projected to stagnate in 2025, with forecasts ranging from -0.1% to +0.4%. Weak foreign demand and US trade policy impact growth. Economic institutes revised forecasts downward, citing geopolitical tensions, trade conflicts, and structural weaknesses. A moderate recovery is expected in 2026.

The German government plans investments in defense, infrastructure, and climate protection to stimulate growth. However, slow implementation may delay impact. Structural reforms are deemed necessary to address demographic challenges and rising non-wage labor costs. Additional government spending could boost growth by around 0.5 percentage points.

German stocks remain resilient despite economic challenges. Inflows into German equity funds have increased, with financial and industrial stocks driving gains. Defense company Rheinmetall benefits from government spending, while SAP struggles. Market correction offers buying opportunities, with many German stocks undervalued.

DZ Bank predicts sideways stock market trends but sees upside potential in the second half of the year. European stock markets may climb to record highs by mid-2026. Investors are advised to stay focused and not react to daily market swings. Bonds, particularly German government bonds, are seen as safe havens amid market volatility.



Read more at Morningstar: Germany Battles Recession and Tariffs: What This…