FRANKFURT (Feb 18): Germany is particularly vulnerable to US trade tariffs, which could curb growth for years to come and hold back an economy already suffering through two straight years of contraction, Bundesbank president Joachim Nagel said on Monday.

Germany, Europe's largest economy, has been in a deep industrial recession, due in great part to subsidised Chinese output crowding out German products at a time when soaring energy costs at home are already weighing on competitiveness.

Modelling projections based on tariff threats from US President Donald Trump, the Bundesbank concluded that Germany would suffer but the US would also take a hit that would more than offset any positive impact of the trade barriers.

"Our strong export orientation makes us particularly vulnerable," Nagel said in a speech. "Economic output in 2027 would be almost 1.5 percentage points lower than forecast," he added.

The Bundesbank sees the German economy growing by 0.2% this year and 0.8% in 2026, suggesting that a 1.5% point hit over the next three years would result in more economic contraction.

"Contrary to what the (US) government has announced, the consequences of the tariffs for the USA should therefore be negative," Nagel added. "The loss of purchasing power and increased costs for intermediate inputs would outweigh any competitive advantages for US industry."

Fabio Panetta, Italy's central bank chief, has also concluded that the US would take a large hit.

Speaking on the weekend, he said that if all tariffs hinted at by Trump before the election were implemented and they were followed by retaliatory measures, global GDP growth would fall by 1.5 percentage points with the US economy suffering a two percentage point hit.

The big risk, Panetta argued, was that Chinese firms shut out of the US would seek new markets and could squeeze out European producers.

One saw only a minor impact while another anticipated a large increase in price pressures because retaliatory tariffs would be passed onto consumers while a weak euro would weigh on import costs, Nagel added.

Uploaded by Siow Chen Ming