German economy:

The energy crisis and rising production costs, coupled with declining export figures and business confidence, are considered challenges that Germany must overcome.

The German automotive industry is facing numerous challenges. (Image *: Volkswagen)*

According to forecasts from the German Chamber of Commerce and Industry (DIHK), the country's economy is expected to contract by 0.3% this year, and concerns are spreading across all sectors. While there are some positive signs in manufacturing and construction, overall investor sentiment remains fragile due to negative impacts from a number of factors.

Exports – a crucial driver of the German economy – will face significant pressure from the high tariffs imposed by the US. DIHK forecasts that German exports will fall by 2.5% in 2025, marking the third consecutive year of decline. Meanwhile, the automotive industry is in crisis with sharply falling sales. Major manufacturers in the sector have announced factory closures and mass layoffs, causing deep concern among politicians .

According to economic experts, the German automotive industry was already severely affected by the Covid-19 pandemic. Its recovery continues to be hampered by ongoing supply chain disruptions, while the Russia-Ukraine conflict has both increased costs and driven up energy prices. Slow technological innovation has also weakened its competitiveness against stronger rivals, particularly inexpensive electric vehicles from China. If US President Donald Trump imposes further tariffs on imported cars and triggers a broader trade war, the German automotive industry will suffer another significant blow.

High energy prices have been a major complaint among German manufacturers and businesses recently, as they continuously face rising production costs, leading to reduced competitiveness and shrinking profits. Among energy-intensive companies, 71% are struggling with high energy and raw material prices. This is affecting many key German industries, including automotive manufacturing, steelmaking, and chemicals. Many factories have had to close temporarily or permanently.

Pessimism remains prevalent among businesses, with surveys showing that nearly one-third of companies plan to cut investment. A DIHK poll of 23,000 companies across various sectors and regions revealed that 29% of respondents believe exports will continue to decline over the next 12 months, while only 19% expect exports to increase. Regarding future challenges, 59% cited uncertainty over economic policies, followed by weak domestic demand (57%) and record-high labor costs (56%).

Faced with economic risks, Germany's new coalition government, led by Chancellor Friedrich Merz, has announced a series of measures to stimulate growth, including: reducing electricity taxes and expanding depreciation allowances to encourage business investment; establishing a multi-billion euro infrastructure investment fund and accelerating approval of energy projects; abolishing the national supply chain law and simplifying administrative procedures. In addition, Economy Minister Katherina Reiche has called on the European Union to approve subsidies for Germany's heavy industry to reduce energy costs and enhance competitiveness.

In addition to the measures mentioned above, the German government needs to quickly develop a strategy to manage the growing global uncertainties. One of the most worrying issues for German companies today is the unpredictable foreign policy moves of US President Donald Trump and the potential for trade wars that could severely disrupt the global economy.

The German economy is at a critical juncture. Overcoming the current challenges requires close coordination between fiscal policy, structural reforms, and international cooperation. Decisions made in 2025 will shape Germany's economic future for years to come. Without strong structural reforms, Germany risks deindustrialization and losing its position as Europe's leading economy.

(According to Politico, AA, DIHK)

Source: https://hanoimoi.vn/kinh-te-duc-doi-mat-voi-nhieu-thach-thuc-704083.html