Germany’s Great Decline: Crisis Worsens as Brutal Trade War and Militarization Accelerate Collapse

Q2 Output declines, worse than forecasts

Germany, once the economic powerhouse of Europe, is facing a steep and ongoing industrial decline. In June, industrial output fell by 1.9%, twice the forecasted drop, with key sectors like machinery, pharmaceuticals, and food production hit hard. Revised data also shows May saw a contraction, leading to an overall 1% industrial decline in Q2.

This downturn is being driven largely by weakening global demand and a sharp escalation in trade tensions — especially new U.S. tariffs of up to 15% on German exports. Major firms like BMW, Audi, and Daimler have already lowered their forecasts, and factory orders dropped unexpectedly in June, mainly due to reduced demand outside the Eurozone.

Germany's trade surplus has also shrunk, signaling deeper trouble for its export-reliant economy. The Bundesbank expects only modest growth through 2027, far below historical norms.

However, there are signs of a potential pivot. Over €100 billion in corporate investment, rising public spending on infrastructure and defense, and increased machinery orders from within the EU suggest Germany may be trying to reduce reliance on U.S. trade. But there's a risk: too much reliance on public spending with weak private demand could lead to further imbalance.

Germany now faces a crucial test: whether it can reinvent its industrial base in a rapidly changing global economy. For now, the engine is sputtering — but the story isn’t over.