By Maria Martinez
BERLIN (Reuters) -The German economy is expected to contract by 0.3% this year, shrinking for a third consecutive year, the German Chamber of Commerce and Industry (DIHK) said on Tuesday, forecasting the longest period of weakness in Germany’s post-war history.
The risk of recession persists, the DIHK said, but following a promising first quarter, its projection was more optimistic than the previously forecast 0.5% contraction published in February.
Economic growth in the first quarter was significantly stronger-than-expected due to export and industry frontloading ahead of U.S. tariffs.
Germany had been expected to be badly affected by tariffs due to its export-oriented economy. The U.S. was Germany’s biggest trading partner in 2024 with two-way goods trade totalling 253 billion euros ($288.02 billion).
The DIHK forecasts German exports to decline by 2.5% in 2025, also contracting for a third consecutive year.
A DIHK survey, conducted among 23,000 companies from all sectors and regions, showed that 29% of them see exports falling over the next 12 months, while only 19% expect exports to rise.
The German economy continues to struggle with pessimistic business sentiment, standing at 94.9 in the latest survey. Values under 100 mean that there are more pessimists than optimists.
“Businesses are still waiting for signals of progress,” DIHK managing director Helena Melnikov said, calling for urgent political action.
“Positive impulses for the economy must come quickly, before the summer break, businesses are waiting for them,” she said.
Melnikov added that because the survey took place between the end of March and the end of April – before the new government was in office – it would serve as a basis to interpret businesses’ response to the coalition’s early economic measures.
Reviving sluggish growth will be one of the main tasks of the coalition of conservatives and Social Democrats.
Economic policy conditions were identified as the largest business risk, with 59% of companies citing them as a major obstacle. High labour costs and domestic demand also pose significant challenges, the survey showed.
Nearly one-third of companies planned to reduce investments.
“Without positive changes, a self-sustaining upswing is unlikely,” Melnikov said.
($1 = 0.8784 euros)
(Reporting by Maria Martinez and Christian Kraemer;Editing by Rachel More and Helen Popper)
