NEVER leave them alone together for long periods...
It can totally happen and they be friends, especially if you get them started young enough. At the bottom line, you should NEBER trust them alone together unsupervised. EVER. As CometDog mentioned, innocent play can hurt or kill a smaller dog. Also, at the bottom line, one correction from the GSD could be fatal.
It could be they are both hungry one day and go in for the same piece of food discovered and you’re not around at the moment, it could come from boredom one day and a fight over a toy, or it could simply be excitement and one dog getting stepped on. You just cannot trust them alone unsupervised for long periods of time ever.
Regarding prey drive, they may not be cannibalistic, they probably aren’t ever going to consume the smaller dog. That being said, with a high prey drive they absolutely can and will get excited and could attempt to capture the smaller dog and retrieve or submit it. Or even just play roughly. At that point one of two dangers could occur: first, the simple act of submitting it could cause real damage. Second, and scarier is the smaller dog being submitted could react and fight back, which would quickly escalate and could end poorly.
I’m saying all of this not just as a breeder who has German Shepherds dogs obtained from all over the world and crossed, but as someone who also has a 12-year-old, 12-pound Dachshund who sleeps with us every night. There might be three shepherds in the bedroom at any given night, but Millie the Dachshund isn’t going to sleep on the floor unless she has her own enclosure because just the simple act of one of the big dogs jumping to attention suddenly could step on her without even meaning to. This is the voice of experience.
Enjoy your dog and teach your dog to be gentle and respectful of smaller animals. We have sold German Shepherd Puppies to homes that have cats and throughout the years it’s amazing to see how they can actually play and get along with cats even! Just be careful, be gentle and strong, and be smart about protecting the little ones because they cannot protect themselves and the bigger dogs might not understand how big they really are.