Germany economy panic as Donald Trump's tariffs crash forecast growth

has cut its economic growth forecast for this year to zero, blaming 's "unpredictable" tariffs policy. It's another blow for Europe's biggest economy after its growth forecast was slashed to 0.3% earlier this year after a previous estimation of 1.1%.

's outgoing Economy Minister Robert Habeck made it clear what he believes is the cause of the downgrade. "There is above all one reason for this, namely s trade policy and the effects of the trade policy on ," he said. The US President imposed 20% "reciprocal" tariffs on the earlier this month before announcing a 90-day pause - however, the is continuing to face the baseline 10% tariff as talks between Washington and the bloc continue.

"The German economy is once again facing major challenges due to the unpredictable trade policy of the ," Mr Habeck said.

"It is therefore in our strong interest that the and the find a solution to the tariff dispute."

It comes after a report published by the International Monetary Fund (IMF) on Tuesday said expected to see economic growth of 0.0% in 2025 and 0.9% in 2026 - a decrease of 0.3 and 0.2 percentage points respectively.

The IMF cut its global economic growth forecasts due to the impact of tariffs, expecting the to be the hardest hit among advanced economies.

The 's growth forecast was also reduced to 1.1%, down from 1.6%.

has an export-oriented economy and is the third-largest exporter in the world after and the .

It was the only economy in the G7 that did not grow for the last two years and is now on track for a historic third year without growth.

Head of the Ifo research institute Clemens Fuest warned: "The German economy is preparing for turbulence."

's new chancellor-in-waiting Friedrich Merz said he plans to modernise the country's economy.

"Our goal is clear: Germany should become economically stronger, safer, fairer and more modern," he said in a video shared on social media by the Christian Democratic Union party.

"We are committed to investing in industry, providing tax relief for small and medium-sized enterprises, and ensuring a reliable energy supply.

"And we are making our country safer both internally and externally."

Last month, German lawmakers voted to allow a huge increase in defence spending by loosening strict debt rules. The move is expected to release billions of euros for Berlin's defence budget.