Olaf Scholz, Chancellor of Germany, throughout a press convention on the Chancellery in Berlin, Germany, on Monday, November 4, 2024.
Christian Bossi | Bloomberg | Getty Photos
The election of Donald Trump as US president might mark one other main blow to the struggling German economic system.
Germany narrowly and unexpectedly sidestepped a technical recession within the third quarter, with preliminary knowledge displaying its gross home product rose 0.2 p.c after contracting 0.3 p.c within the earlier quarter. The stamp got here subsequent the German Ministry of Economics mentioned in October that he now expects the nation’s economic system to shrink fairly than develop this 12 months.
Not solely is the nation’s economic system struggling to choose up tempo, however a collection of key indicators are additionally portray a poor image. This contains Germany Composite PMIwhich rose barely in October however remained in contraction territory, in response to knowledge from S&P International and Hamburg Industrial Financial institution launched on Wednesday.
A Trump victory might make issues worse.
“Donald Trump’s doubtless election victory marks the start of probably the most tough financial second within the historical past of the Federal Republic of Germany,” Moritz Schularich, president of the Kiel Institute for World Economics, mentioned in a word after Trump introduced victory.
“Along with the home structural disaster, the nation now faces monumental challenges in international commerce and safety coverage for which we’re unprepared,” Shularik mentioned, including that the financial insurance policies outlined by Trump would put further strain on development throughout the Europe.
Export reliance
Germany’s economic system is closely depending on exports — and Trump is poised to impose tariffs and different restrictions on imports.
The German statistics workplace Destatis final month said that the significance of the US as a buying and selling associate for Germany is rising. The US is Germany’s second largest buying and selling associate after China from 2021. to this point, however overtook Beijing within the first half of this 12 months.
About 9.9% of German exports went to the US in 2023. as a worth, in response to Destatis.
Trump has beforehand prompt he might impose blanket tariffs of 10 p.c to twenty p.c on practically all imports if elected, no matter their origin.
Consequently, German exporters might now endure, the ifo financial institute mentioned in a word on Wednesday.
“German exporters … ought to anticipate critical losses if Trump follows via on his risk to impose headline tariffs of 20 p.c on US imports from all buying and selling companions,” it mentioned.
“These measures by the re-elected US president would imply vital financial injury of 33 billion euros in Germany alone,” ifo added, estimating that German exports to the US might fall by round 15% because of this.
In the meantime, Morningstar DBRS recognized autos and chemical compounds as two of the sectors most uncovered to potential Trump tariffs — each of which have traditionally been key pillars of German business.
Lissandra Flach, director of the ifo Middle for Worldwide Economics, mentioned Germany and the European Union should now take their very own measures as they have to anticipate the US distancing itself from world cooperation.
“Germany and the EU should now strengthen their place via measures of their very own. These embrace deeper integration of the EU providers market and credible countermeasures towards the US,” she mentioned.
The German political response
The US election comes at a time when Germany’s authorities is in turmoil. On Wednesday, Chancellor Olaf Scholz fired then finance minister Christian Lindnerand the ruling coalition successfully collapsed.
Senior German political figures, together with Scholz and Lindner, congratulated Trump on his election on Wednesday.
Chatting with reporters, Scholz mentioned Germany would stay a “dependable” associate, in response to a translation by CNBC.
Earlier than his dismissal, Lindner confirmed openness to partaking with Trump, telling X that Europe ought to “attain out” to the Republican politician.
“Within the EU, NATO, and in addition in Berlin, we now must do our homework on financial and safety coverage extra urgently than ever,” Lindner mentioned.
Speaking to CNBC last monthLindner warned that US commerce coverage may very well be an issue if Trump is elected.
“In that case, we’d like a diplomatic effort to persuade whoever enters the White Home that it isn’t in the most effective curiosity of the USA to have a commerce battle with [the] European Union. We should contemplate retaliation,” he mentioned on the time.
