Germany's economy is showing initial signs of recovery despite uncertainties!

Germany's economy is showing initial signs of recovery despite uncertainties!

The economic barometer of the German Institute for Economic Research (DIW Berlin) recorded an increase to 90.1 points in May 2025. This means that the value is over seven points higher than in the previous month and reaches the level of February and March. However, the neutral 100-point mark, which indicates average economic growth, remains a long way off Recycling portal reported.

Geraldine Dany-Knedlik, DIW's head of economic activity, commented that the German economy is picking up slightly despite higher trade barriers. In addition, an increase in economic output of 0.4 percent was recorded in the first quarter. However, this positive dynamic is not necessarily expected to continue. In particular, attention is drawn to the challenges arising from foreign trade, which is likely to have a slowing effect.

Economic developments and challenges

Uncertainty among companies and households remains high due to stagnation and geopolitical uncertainties. Despite the positive developments in private consumption, the challenges facing the German economy should not be underestimated. A further sign of these uncertainties is the increased ifo business climate index for German industry, in particular the improved expectations, which are, however, accompanied by a weakening global economy and tariff increases by the US government.

There are hesitant signs of improvement in the service sector, although the overall situation remains mixed. Retail sales are developing positively, while the savings rate fell in the first quarter. According to the GfK consumer climate index, the consumer climate improved slightly in May, but remained cloudy. Economic expert Guido Baldi emphasizes that the German economy is showing the first signs of recovery, while the global environment remains challenging.

The DIW economic barometer in detail

The DIW economic barometer is based on over 311 variables compiled from different areas such as industry, services and the labor market. In order to obtain a precise assessment of the economic situation, 134 series on industrial production and 141 series on services are included in the calculation. The complexity of the partial data requires careful weighting in order to identify clear trends DIW explained.

The barometer uses statistical methods such as principal components or factor analysis to create independent sub-indices from the different areas. These sub-indices are weighted sums of the values ​​within a range and help to structure the opposing signals. A conscientious analysis of past and current developments is necessary in order to create clear economic forecasts.