FX.co ★ Germany’s economy under triple pressure from China, US, and energy crisis

Germany’s export-driven economy is going through a difficult period due to a slowdown in world trade, protectionism, and strong pressure from China. According to the Wall Street Journal, Germany’s GDP will hardly exceed 1% this year, and the country has been lagging behind the rest of the euro area since the pre-pandemic period. Employment in German manufacturing has already fallen to a ten-year low, while business investment volumes have been declining steadily since 2020. The main threat has become China’s industrial expansion: Beijing has sharply increased production of its own electric vehicles, machine tools, and equipment, directly displacing German exporters both in Europe’s internal market and in global markets.

German manufacturers were also bruised by Beijing’s export restrictions on rare-earth elements, which seriously disrupted logistics chains in the automotive, defense, and mechanical engineering sectors in Germany. The situation is worsened by soaring energy prices caused by the conflict in the Middle East and new US trade tariffs. On top of that, Europe’s technological vulnerability has become more acute: recent US limits on exports of Anthropic’s latest AI models suddenly cut off some European firms from advanced IT solutions, starkly exposing the region’s critical dependence on American digital infrastructure.

To salvage the situation, Chancellor Friedrich Merz’s government took emergency measures: it introduced tax breaks for businesses, artificially reduced energy prices, and increased budget spending on infrastructure and defense. In addition, Berlin announced plans to gradually raise the retirement age from 67 to 70 and to launch an import-substitution program to reduce dependence on Chinese components. Nevertheless, economists call for deeper structural reforms, urging an immediate reduction in bureaucracy, easier access to commodities, and a major ramp-up of investment in local technology startups.