Olaf Scholz, Germany’s chancellor, throughout a information convention on the Chancellery in Berlin, Germany, on Monday, Nov. 4, 2024.
Krisztian Bocsi | Bloomberg | Getty Pictures
Donald Trump’s election as U.S. President may mark one more main blow for the struggling German financial system.
Germany narrowly, and unexpectedly, skirted a technical recession within the third quarter, with preliminary knowledge displaying its gross home product grew by 0.2% after a 0.3% contraction within the earlier quarter. The print got here after the German economy ministry in October stated it was now anticipating the nation’s financial system will contract, relatively than develop this yr.
Not solely is the nation’s financial system struggling to choose up tempo, however a sequence of key indicators have additionally been portray a lackluster image. That features Germany’s composite PMI, which rose barely in October, however remained in contraction territory, in accordance with knowledge from S&P International and Hamburg Industrial Financial institution revealed Wednesday.
Trump’s victory may make issues worse.
“Donald Trump’s doubtless election victory marks the start of essentially the most troublesome financial second within the historical past of the Federal Republic of Germany,” Moritz Schularick, president of the Kiel Institute for the World Financial system, stated in a word after Trump claimed victory.
“Along with the home structural disaster, the nation now faces large international commerce and safety coverage challenges for which we aren’t ready,” Schularick stated, including that the financial insurance policies outlined by Trump will put further stress on progress throughout Europe.
Reliance on exports
The German financial system is closely reliant on exports — and Trump is ready to slap tariffs and different restrictions on imports.
The German statistics workplace Destatis final month said that the U.S.’ significance as a buying and selling accomplice for Germany has been rising. The U.S. has been Germany’s second largest buying and selling accomplice behind China since 2021, however overtook Beijing within the first half of this yr.
Round 9.9% of German exports went to the U.S. in 2023 when it comes to worth, in accordance with Destatis.
Trump has beforehand prompt he may put blanket tariffs of 10% to twenty% on nearly all imports, if he had been elected, no matter their origin.
German exporters could subsequently now undergo, the ifo financial institute stated in a word on Wednesday.
“German exporters … should anticipate extreme losses if Trump makes good on his risk to impose fundamental tariffs of 20 % on US imports from all buying and selling companions,” it stated.
“These measures by the re-elected US President would imply appreciable financial harm of EUR 33 billion in Germany alone,” ifo added, estimating that German exports to the U.S. may shed roughly 15% because of this.
Morningstar DBRS in the meantime recognized autos and chemical compounds as two of the sectors most uncovered to potential Trump tariffs — each of which traditionally have been key pillars of the German business.
Lisandra Flach, director of the ifo Middle for Worldwide Economics, stated that Germany and the European Union should now take their very own measures, as they should anticipate the U.S. distancing itself from international cooperation.
“Germany and the EU should now strengthen their place by way of measures of their very own. These embrace deeper integration of the EU providers market and credible retaliatory measures in opposition to the US,” she stated.
German political response
The U.S. election comes at a time when Germany’s personal authorities is in turmoil. On Wednesday, Chancellor Olaf Scholz sacked then Finance Minister Christian Lindner, and the ruling coalition successfully broke aside.
Senior German political figures together with Scholz and Lindner had on Wednesday congratulated Trump on his election.
Chatting with journalists, Scholz stated Germany would stay a “dependable” accomplice, in accordance with a CNBC translation.
Previous to his sacking, Lindner had proven openness to interact with Trump, saying on X that Europe ought to “stretch out a hand” to the Republican politician.
“Within the EU, NATO and likewise Berlin we now must do our economic- and safety coverage homework extra urgently than ever,” Lindner stated.
Speaking to CNBC last month, Lindner had warned that U.S. commerce coverage may very well be a problem, if Trump had been elected.
“In that case we want diplomatic efforts to persuade whoever enters the White Home that it is not in the most effective curiosity of the U.S. to have a commerce battle with [the] European Union. We must contemplate retaliation,” he stated on the time.
