The asymmetrical trade agreement between the EU and the U.S. will further worsen Germany’s recession. Yet neither politicians nor corporate leaders show any willingness to make the sweeping policy changes needed to reverse course.
Germany’s economic data leaves no room for illusions. After contracting by 0.9% in 2023 and another 0.5% last year, the decline will continue this year.
The Machine Room Has Been Blown Apart
It is precisely the sectors that have sustained German prosperity for decades -- automobiles, construction, machinery -- that are under the heaviest pressure. Without the artificial boost from state spending -- now accounting for half of GDP -- the private sector is set to shrink by 4-5% this year.
Since 2018, total productivity has been in steady decline. This is also a social problem: Germany is importing hundreds of thousands of welfare migrants into its social systems, yet the economy would have to boom just to keep per capita prosperity from falling.
A new survey by the German Chamber of Commerce and Industry (DIHK) confirms what was already obvious: the EU-U.S. trade deal will especially hurt Germany’s export-oriented economy.
According to the survey, 58% of companies expect additional burdens, rising to 74% for firms with direct U.S. business. Only 5% expect any benefit.
“This deal may have been politically necessary, but for many German companies it’s a bitter pill,” said DIHK CEO Helena Melnikov. “Higher tariffs, more bureaucracy, falling competitiveness” -- that’s the price of the diplomatic truce between Washington and Brussels.
As of Thursday, a general 15% tariff applies to exports to the U.S., hitting automotive and machinery manufacturers hardest. 89% of U.S.-oriented firms report immediate disadvantages, 72% fear further tariff hikes, 80% worry about political arbitrariness in transatlantic trade, and more than half plan to scale back U.S. operations.
Business Was Already Weak
In its May survey of over 21,000 companies, only 23% reported positive business expectations -- down five points -- while 30% expected deterioration. In industry, one in three anticipates fewer orders.
Just 19% plan to increase investment, while about a third plan to cut back. High energy prices, labor shortages, and political uncertainty are seen as the main drags. The DIHK forecasts a 0.3% recession for 2025, but adjusting for state spending, the real decline is closer to 4-5%.
Daily surveys confirm the same message: Germany is being deindustrialized, losing hundreds of thousands of core-sector jobs. The social security deficits already emerging are just the beginning. Yet both politics and business refuse to conduct an honest diagnosis.
The Green Deal remains sacrosanct. Energy costs for German industry are up to three times higher than for U.S. competitors, double that of French firms -- pushing energy-intensive sectors out of the country.
Dancing Around the Golden Calf
Nobody dares openly challenge Brussels’ climate agenda. A rare exception came in June, when a group of works council representatives wrote an open letter to the chancellor, naming the Green Deal as a root cause of decline.
But most CEOs dodge the question. Mercedes-Benz chief Ola Källenius cites “weak demand, high production costs, and US tariff uncertainty” for falling margins -- but ignores the Green Deal’s role. VW CEO Oliver Blume calls for lower energy prices and tax incentives for EVs -- essentially more subsidies to keep the transition alive.
Corporate leadership is now fused ideologically with the Green Deal. The energy transition has battered Germany’s industrial base: sectors like construction and automotive have been knocked completely off track.
A Split Economy
Events like the “Made for Germany” coffee chat between 61 CEOs and the Chancellor are symbolic of a corporatist mindset. Large corporations can adjust or relocate production to sidestep regulation, but small and medium-sized enterprises -- the Mittelstand -- are being crushed.
The Green Deal’s bureaucratic weight ultimately clears the field for big corporations by eliminating smaller competitors.
The Mittelstand has no political backing, and many are fighting daily for survival -- often ending in bankruptcy. In H1 2025, insolvencies rose 9.4% year-on-year to 11,900 companies.
There is still no sign of a policy shift on climate. The German corporate elite has failed to seize the initiative to force political change. Germany is heading for a hot autumn -- economically and socially.
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