Germany is expected to lag behind other major global economies in 2025, with its economic output projected to contract by 0.2 percent, according to a forecast released Tuesday by the German Economic Institute (IW).

The Cologne-based think tank cited U.S. trade policies, ongoing global uncertainties, and persistently low levels of investment as the main factors weighing down the German economy, which has already contracted for two consecutive years.

While other leading economies are forecast to return to growth this year, the IW report warns that Germany will remain mired in recession. The institute identified current U.S. trade policies as the most significant threat to the global economy, predicting they could reduce global output by 0.8 percent.

The bleak economic prospects are expected to translate into weaker labour market performance. The number of unemployed people in Germany is projected to reach 3 million this summer.

“The German economy is in deep crisis,” the institute warned in a press release issued in April, noting that one in three German companies plans to cut investment, while up to 35 percent are preparing to reduce their workforce.

The IW urged the new federal government to take swift and decisive action to revitalize the economy and counter mounting structural challenges.

A separate report released in late April by the German central bank also pointed to a deteriorating outlook. After a modest uptick in economic activity during the first quarter, the central bank warned of a possible setback in the second quarter, describing the overall economic outlook as having turned “significantly gloomier.