Unemployment and Economic Downturn: IW Forecasts Looming Recession in Germany
Increased Unemployment Linked to Ongoing Trade Controversies, According to Experts - Customs disagreement leads to rise in joblessness, according to researcher at International Watch
Let's cut to the chase - the German economy ain't looking too hot, according to IW, the Institute of the German Economy in Cologne. They've predicted a 0.2% shrinkage this year, which could mean three million unemployed. And guess who's to blame? Yep, you guessed it - the US trade conflict.
The global market is filled with uncertainties, low investments are persisting, and Germans are being cautious when making big purchases. The IW isn't beating around the bush - they're calling it like it is: recession. The country's economic slump started in 2024 when the GDP also fell by 0.2%.
IW Warns: Three Million Jobless Again
This economic downturn is reflected in Germany's employment figures. Since mid-2024, the number of employed individuals has been on a steady decline. By summer, the nationwide unemployment figure could hit a staggering three million - a number last seen in 2010.
IW: US Trade Policy Threatens the World Economy
If there's one thing that could set the world economy on fire this year, it's US trade policy. According to the IW's analysis, global economic growth in 2025 could be boosted by up to 0.8% without US trade policy.
The US trade conflict is affecting the world economy in various ways. Uncertainty causes many companies to hesitate, especially when it comes to expensive ventures like purchasing new machinery and vehicles. The situation is particularly grim for industries and construction, according to IW. German industrial companies are estimated to produce less value-added in 2025 than in the previous year due to a projected 3% decline in 2024. This decline is attributed to high energy prices, increasing wages, and an onslaught of regulations. Construction companies are also anticipated to face restrictions this year, following a 3.7% decline in 2024. High construction costs due to stringent regulations are slowing down the economy, too.
IW Sees Hope for Change
Michael Grömling, the IW's chief economist, believes that the new government has a chance to steer the ship in the right direction. The $130 billion infrastructure special fund recently announced could provide a much-needed boost to the economy if used wisely, with swift planning procedures.
- IW
- Economic Downturn
- Trade Dispute
- Institute of the German Economy
- Cologne
- Germany
- World Economy
- Recession
Enrichment Data:
Without specific data from the Institute of the German Economy (IW) in Cologne, here are some general insights based on other available information:
- Export Impact: Germany depends on exports, with about 10.4% of its exports going to the US in 2024. The imposition of tariffs by the US, particularly on German cars, could significantly impact these exports, reducing German exports to the US market's competitiveness.
- Economic Growth and Recession: The German economy is already under pressure from high energy costs due to the Ukraine war and weakening demand from China. The uncertainty and impact of US tariffs could further exacerbate these challenges, potentially contributing to a third consecutive year of economic stagnation or recession.
- Global GDP Impact: US tariffs could lead to a small contraction in the EU's GDP, with a potential drop of about 0.3%. However, the US could face a more significant impact, with potential GDP contractions of up to 0.7% in certain scenarios. This highlights the intricate relationships between trade policies and economic outcomes globally.
- Investment Plans: The US, a traditional investment destination, is experiencing a decline in investment plans due to trade policy uncertainty. Only 24% of German companies are planning to increase their investments in the US, down from 37% previously. This decline in investment momentum is particularly concerning for small and medium-sized enterprises (SMEs).
- To combat the impending recession and high unemployment rates in Germany, the new government could consider revising community and employment policies, with a focus on vocational training programs, to help upgrade the workforce's skills and improve employability.
- In an effort to boost the economy and overcome the challenges posed by the trade dispute, the German government could consider directing funds from the $130 billion infrastructure special fund towards projects that stimulate business development and create job opportunities, such as investments in finance and critical industrial sectors like construction and manufacturing.
