Economy in Germany: growth disruption and tariff fears threaten!

Economy in Germany: growth disruption and tariff fears threaten!

The economy in Germany continues to show mixed signals. In the first quarter of 2025, economic output increased by 0.2% (seasonally adjusted) compared to the previous quarter, and industrial production improved after almost two years of decline. This upswing is supported by an improved order situation and pull-forward effects due to planned US tariff increases. Exports of goods also increased, indicating a certain revival in international trade.

An important factor for economic growth was private consumption, which had a positive influence, supported by the increase in wages in the previous year. Despite these positive aspects, unemployment rose moderately in the winter to 2.90 million, which corresponds to an unemployment rate of 6.2%. This could indicate ongoing uncertainties in the market, which are also fueled by the rising inflation rate.

Inflation and economic outlook

In the first quarter of 2025, the inflation rate rose by 0.7% (seasonally adjusted) compared to the previous quarter, influenced primarily by increased prices in the service sector and energy. Compared to the previous year, the inflation rate climbed slightly to 2.6%. However, core inflation, which excludes energy and food, remained stable at 3.2%. The Bundesbank estimates future inflation developments to be uncertain and expects fluctuations of around 2% in the coming months.

The economic outlook for the second quarter of 2025, however, is bleak. The Bundesbank expects the German economy to stagnate. Ongoing stress factors, particularly the stricter US customs policy, are having a negative impact. The export industry faces a difficult competitive position, while weak demand increases pressure on domestic companies.

Challenges for exports

The appreciation of the euro is putting additional pressure on exports. Business owners are concerned about the uncertainty brought about by the tariff conflict; This affects companies' planning security and willingness to invest. However, there is also hope as consumer sentiment improved in April, which could subsequently boost private consumption.

The coalition agreement of the new federal government contains measures aimed at strengthening growth, particularly in the area of ​​corporate investment. However, the Bundesbank emphasizes that there is a lack of a coherent overall concept for the energy transition and strongly advises against subsidies. Instead, the focus should be on market-based incentive mechanisms.

Labor market and social security

In addition, there is still a significant need to catch up on measures to strengthen the job supply, particularly for older workers and women. Rising social security contributions could also put a strain on work incentives and the competitiveness of the export economy.

Important data on the economic situation and future forecasts are regularly provided by institutions such as the Federal Statistical Office, the Ifo Institute or the ZEW. This information includes a wide range of economic indicators that are important for assessing the economic situation and is available on the DIHK website, where current statistics over time can also be found DIHK. An unchanged German economy is seen as a problem, underlining the need for a clear path to strengthening the economy, such as the Bundesbank emphasized.