FRANKFURT, Germany: Germany faces significant economic risks from potential U.S. trade tariffs, which could dampen growth for years and further strain an economy already struggling with industrial downturns, Bundesbank President Joachim Nagel warned on Monday.

Nagel highlighted Germany's heavy reliance on exports, making it particularly vulnerable to new trade barriers imposed by the United States. "Our strong export orientation makes us particularly vulnerable," he said, adding that economic output in 2027 could be nearly 1.5 percentage points lower than current forecasts.

The German economy, the largest in Europe, has been grappling with two years of contraction, in part due to rising energy costs and increased competition from subsidized Chinese exports. The Bundesbank currently projects Germany's economy to grow by just 0.2 percent this year and 0.8 percent in 2026. A 1.5 percentage point decline over the next three years could push the country into further economic stagnation.

The warning comes amid concerns over U.S. President Donald Trump's trade policies, which have included threats of tariffs on key imports. According to the Bundesbank's analysis, while Germany would suffer under new trade barriers, the U.S. economy would also take a significant hit.

"Contrary to what the (U.S.) government has announced, the consequences of the tariffs for the USA should therefore be negative," Nagel said. He noted that losses in purchasing power and increased costs for intermediate goods would outweigh any competitive advantages for American industries.

Italy's central bank chief, Fabio Panetta, echoed these concerns over the weekend, warning that if Trump's proposed tariffs were fully implemented and triggered retaliatory measures, global GDP growth could fall by 1.5 percentage points. The U.S. economy alone could suffer a 2 percentage point decline.

Panetta suggested that one of the biggest risks is that Chinese firms blocked from U.S. markets could flood European markets instead, intensifying competition and putting European manufacturers under greater pressure.

The potential impact on inflation remains uncertain. The Bundesbank's models offer mixed results, with one suggesting a minor effect while another predicts a significant rise in price pressures. Retaliatory tariffs could lead to higher consumer prices, and a weaker euro could drive up import costs, Nagel added.