Economic Instability: Ukraine, Trump, and Inflation Fueling Uncertainty Worldwide
In a recent survey conducted by online bank ING, the ongoing conflict in Ukraine emerged as the most significant global concern for respondents, with 34.6% expressing this worry. However, domestic concerns about personal financial situations and economic stability have also taken centre stage in Germany.
The German economy, traditionally export-driven, is grappling with stagnant growth, trade tensions, and political uncertainty, which are affecting consumer sentiment and spending habits. According to economic forecasts, the German economy is expected to grow only slightly in 2025, following stronger-than-expected first-quarter data. This would mark three consecutive years of minimal growth.
Trade issues are a major drag, with new tariffs imposed by the US on steel, aluminium, cars, and car parts estimated to reduce growth by about 0.75 percentage points in 2025-2026. If trade conflicts escalate, GDP losses could increase to 1.5 percentage points by 2027. External shocks, such as the war in Ukraine disrupting cheap Russian gas supply and a protectionist global trade environment, are further harming Germany's economy. Additionally, a chronic lack of investment due to fiscal constraints has weighed on economic performance.
The collapse of the German "traffic light" coalition government in late 2024 over disagreements on economic policy and fiscal rules has increased political uncertainty, negatively impacting business confidence and consumer sentiment. Industrial production showed a slight recovery in May 2025, but retail sales dropped by 1.6% month-over-month, illustrating weaker consumer spending in the face of these challenges.
Payment delays among German companies increased for the fourth consecutive year in 2025, with 81% of firms reporting delays and longer payment terms, indicating tighter liquidity and cautious credit practices. Despite this, some optimism remains for 2026, driven by planned fiscal reforms and increased public investment.
To counter growth challenges, the government has approved a constitutional amendment easing the debt brake for defense spending and created a €500 billion fund for infrastructure investment, signaling a fiscal stimulus that could buoy the economy beyond 2025.
Domestically, Germans are primarily worried about their personal financial situations. Many consumers are responding to their concerns by saving more. Nearly a third of consumers who are most worried are saving more, and among those most worried about the general economic situation, 51% are reducing their spending. The inflation rate has dropped to 2.0%, but 40% of respondents are still anxious about inflation.
The percentage of Germans considering U.S. politics as the greatest geopolitical uncertainty has doubled from 13% to 26.7% following Donald Trump's re-election. This reflects a growing global concern that is also impacting consumer confidence in Germany.
ING economists predict a slow recovery in consumer sentiment, reflecting the ongoing challenges facing the German economy and the global landscape. The overall environment leads to more restrained consumer habits amid uncertainty. However, planned government spending increases in defense and infrastructure aim to support recovery in the medium term.
In the face of stagnant growth, trade tensions, and political uncertainty plaguing the German economy, many consumers are applying restraint in their spending habits, responding to personal finance concerns and economic instability. Simultaneously, there is a growing interest in US politics, with 26.7% of respondents considering it as a significant geopolitical uncertainty, contributing to general news headlines and potentially impacting consumer confidence.
