German GDP
Germany’s economy grew 0.4% in Q1 2025, driven by exports and spending, but structural challenges and tariff uncertainty cloud long-term sustainability and competitiveness.
Germany’s economy delivered a stronger-than-expected performance in the first quarter of 2025, expanding by 0.4% QoQ—double the initial flash estimate of 0.2% and marking the strongest growth since Q3 2022—largely driven by frontloaded exports and industrial production ahead of anticipated U.S. tariffs under the renewed Trump administration. The rebound was underpinned by a 0.5% rise in private consumption, fuelled by a significant 7.5% QoQ drop in household savings, and a 0.9% increase in investment, while net trade contributed a robust 0.9 percentage points to overall GDP growth. On a year-on-year basis, however, the economy remained 0.2% smaller, underscoring the fragility of the recovery. March, in particular, saw a notable surge in industrial output and exports, timed around U.S. tariff threats and the so-called "Liberation Day" campaign rhetoric, temporarily boosting demand. Nonetheless, government consumption and inventories detracted from growth, and the tariff uncertainty—despite a current 90-day pause—continues to weigh on business sentiment and investment planning. While the quarter's results offer a rare upside surprise following months of downward revisions to growth forecasts, the outlook remains clouded by Germany’s weak structural momentum, sluggish productivity gains, and the new government’s cautious reform agenda. The administration now has access to substantial fiscal space, which it aims to channel into infrastructure and defence, but economists warn that without complementary efforts to enhance competitiveness, modern infrastructure alone will not drive long-term transformation. Though there are early signs of a turning inventory cycle that may support industrial activity in the near term, the broader macroeconomic environment—shaped by shifting global trade patterns and rising geopolitical risk—suggests the current momentum may not be sustainable. Still, the Q1 data marks a welcome shift in tone and could prompt upward revisions to 2025 growth forecasts if cautiously sustained.
We expect Germany to face a period of stagflation, where weak economic growth—driven by structural challenges and external shocks—coexists with persistent inflationary pressures from global trade disruptions and elevated energy costs.