BERLIN >> As Germans prepare for a snap election after the collapse of a fragile government coalition, one issue at the top of voters’ minds will be how the new government would revive the country’s once powerful economy at a time when energy prices are high and companies are cutting jobs.

Germany, Europe’s largest economy, has not seen significant growth in the past two years. Last week, the country’s economy recorded 0.1% growth from July to September, but it is forecast to contract over the entire year. And economists do not expect to see a return to growth in 2025, unless a new government can make significant changes quickly.

Driving that point home, Germany’s largest auto supplier, Bosch, said Friday that it planned to cut 5,500 jobs, beginning in 2027. More than two-thirds will be at German factories.

High energy prices, a complex bureaucracy, aging public infrastructure and geopolitical developments have hurt Germany’s export industry. Political paralysis under the previous government exacerbated the situation.

The coalition led by Chancellor Olaf Scholz spent the last year bickering over issues from energy to immigration before finally collapsing this month. Early elections on Feb. 23 are likely to result in a new government, which will have the opportunity to turn things around.

But economists warn that this will require changes to tax and welfare policies, as well as deregulation and investment in infrastructure. “Without major policy changes, the German economy’s long-run growth potential is extremely limited,” said Salomon Fiedler, an economist at Berenberg, a private bank.

Cost of uncertainty

German industrial companies have seen production shrink more than 12% since 2018. Many point to a lack of clear signals from Berlin on where they should direct investment.

An example was an abrupt decision by the government to end subsidies for electric vehicles at the end of last year, in an effort to slim down the budget. Automakers, which had been ramping up production of battery-powered cars, saw demand plunge after spooked customers pulled back.

The fallout from that decision has led to job cuts in the automotive industry this year. On Wednesday, Ford Motor announced that it was eliminating 4,000 jobs in Europe, most of them in Germany. Volkswagen is threatening to close up to three of its 10 German factories as part of the restructuring needed to return the brand to profitability.

Under pressure

At the heart of Germany’s economic problems lies its once formidable industrial sector, which is expected to see production fall 3% in 2024 for the third year in a row, according to data compiled by the German industrial association BDI.

Faced with higher energy prices, environmental and digital services regulation and growing competition from China, companies that once dominated sectors from automotive to machinery and steel now find themselves needing to cut costs and restructure.

“German industry is under massive pressure,” said Tanja Gönner, managing director of the BDI. “A recovery in 2025 is not in sight.”

Earlier this month, Germany’s largest steelmaker, ThyssenKrupp, was forced to write down the value of its steel division by 1 billion euros ($1.04 billion), after posting a yearly net loss of 1.4 billion euros. The company has been struggling for years to decarbonize its steel production as the price of powering its existing coking plants has soared.

Beyond the industrial giants, the German economy also depends on innovation and expertise. But in an increasingly digital world, Germany is lacking new startups that will help drive the next generation of growth.

Threat of tariffs

Germany, the world’s third-largest exporting nation, sells cars, chemicals and machines around the world. But all three sectors are suffering, as geopolitics and supply chain shifts in recent years have disrupted global trade.

Last year, the United States replaced China as Germany’s most important trading partner, sending goods worth 157.9 billion euros across the Atlantic. But with President-elect Donald Trump promising across-the-board tariffs as a cornerstone of his economic policies — including levies of 60% or more on goods from China — that number could drop, further hurting Germany.

Many German companies are already heavily invested in the United States, including BMW, Mercedes-Benz and Volkswagen and dozens of automotive suppliers, as well as leading chemical and pharmaceutical firms. But those companies also export from their U.S. factories and could be hurt if Trump’s plans set off a wider trade war.

In the last year, German companies invested 15.7 billion euros in the United States. Cheaper energy prices and lower taxes were the main attraction, but many companies also benefited from the incentives offered by the Inflation Reduction Act, which Trump has promised to repeal.

During his first term in office, Trump targeted Germany for what he called its “massive trade deficit.” Germany’s trade surplus with the U.S. has not shrunk significantly over the last four years, reaching 63.3 billion euros in 2023, raising concerns that Trump could again make it an issue.

Regardless of how Trump’s economic policies play out, economists do not expect them to benefit Germany.

“Whether it’s the prospects of tariffs or U.S. tax cuts and deregulation indirectly undermining German competitiveness, it’s hard to see how U.S. economic policies will not be negative for the German economy,” said Carsten Brzeski, an economist with ING Bank.