Bundesbank Warns of Trade War Recession in Germany Until 2027

In a special report on a ‘dangerous scenario,’ the Bundesbank outlines the potential impact of escalating global trade tensions. The central bank’s analysis, published in its monthly report on June 6, suggests that if international trade disputes intensify after July 9—when a three-month suspension of U.S. tariffs ends—Germany could face a recession lasting until 2027. The uncertainty surrounding future U.S. trade policy remains high, with higher tariffs looming over many trading partners from July onwards. This scenario assumes that announced tariff increases from early April, currently partially suspended, will come into full effect, leading to strong reactions in financial markets and persistent uncertainty about U.S. economic policies. If negotiations between the EU and the U.S. fail, and the U.S. imposes so-called ‘reciprocal’ tariffs on almost all imports starting Q3 2025, at levels announced on April 2, 2025, it could severely impact the global economy. The Bundesbank warns that German exports would suffer significantly due to slower global growth and reduced demand from trading partners. Additionally, increased global uncertainty could lead companies to delay investment decisions. By 2027, Germany’s GDP growth losses could accumulate to over 1.5 percentage points compared to the baseline scenario. In this scenario, any appreciation of the euro against the dollar, similar to what was observed in April, would further exacerbate the negative impact on GDP growth by an additional cumulative 0.2 percentage points by 2027. The recovery predicted in the baseline forecast would be delayed until 2027, with GDP declining both this year and next. While inflation rates might decrease slightly below the baseline forecast, the overall negative impact is expected to increase over the forecast period.