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German economy: Surprising growth in the first quarter of 2025!
The German economy grew by 0.4% in Q1 2025. Despite positive trends, a long-term upswing remains questionable.
German economy: Surprising growth in the first quarter of 2025!
The latest economic reports show mixed signals for Germany and the USA. The German economy grew by 0.4 percent in the first quarter of 2025 compared to the previous quarter, which is twice as strong as previously estimated. These figures were announced on Friday by the Federal Statistical Office (Destatis). The increase was largely supported by positive economic developments in March and an increase in exports, particularly of cars and medicines.
Manufacturing output exceeded expectations, while private consumer spending rose 0.5 percent, helped by easing inflation and rising wages, which led to more disposable income. In addition, investments in buildings and equipment recorded increases of 0.5 percent and 0.7 percent respectively.
Economic outlook
Despite this growth, however, there are no signs of a sustained economic recovery. The Bundesbank predicts that the economy will stagnate in the second quarter of 2025. The German economy could be heading into the third year in a row without significant growth. Economists are hopeful that a planned financial package could stimulate economic activity. The Ifo Institute estimates a slightly positive growth rate for 2025, while growth of 1.0 percent is forecast for 2026.
Planned federal spending of billions on defense and infrastructure could also have a supportive effect. In addition, an easing of the tariff dispute with the USA and necessary reforms could have positive effects on growth. The Federal Cabinet is also planning an initial relief package for companies by mid-July, which will include, among other things, a reduction in electricity tax and labor market reforms.
US Economy: Positive Outlook
However, the political changes following the Republican election victory could lead to tariff increases on imports from China and automobiles, which could increase the effective tariff rate by 3-4 percentage points. Net immigration could fall to 750,000 per year through tighter immigration policy. In the long term, 2017 tax cuts are expected to be extended and additional tax cuts are expected.
Further growth above consensus expectations is expected in 2025, with core PCE inflation forecast to decline to 2.1%. Despite a 15% chance of a recession, which is in line with the historical average, consumer and business investment play a crucial role as growth drivers. However, a 10% across-the-board tariff could push inflation above 3% and hurt GDP growth. In addition, the Federal Reserve is expected to cut the key interest rate to 3.25-3.5%.
Overall, it shows that both economies are facing challenges, but also have positive impulses and measures in the pipeline that could lead to stability and growth in the long term.