The German economy surprised everyone with greater than expected growth of 0.4% in the first quarter of the year. Unfortunately, we’ve heard similar bad news lately directly from the German statistics office. This last figure was a shocker, particularly given a shrinkage of 0.2% in the prior quarter. A big part of the data revision is painted with a much rosier brush. This is an impressive reversal for a country that has long suffered from a lost economic decade.
Ruth Brandt, head of the German statistics office, stressed the importance of March’s performance. She stated that it was due to “the surprisingly good economic development seen in March” leading to the revision. According to U.S. manufacturers, domestic businesses have significantly increased production ahead of the expected tariffs from the U.S. This forward-thinking initiative has helped spur unprecedented economic development.
As Carsten Brzeski, global chief of macro at Dutch bank ING, told the New York Times, this growth could be a one-time jump. He described it as “a good one-off” in the short term but warned that the fundamental problems are still there. To put things in perspective, industrial production and exports were up sharply in March, he continued. That spike was driven by companies acting in anticipation of the proposed tariffs and prepping for what he termed “Liberation Day.”
The only time Germany has had greater growth since then was during Q3 2022, when GDP grew 0.6%. While this is certainly good news given the recent uptick, the overall economic context is alarming. As a result, a government panel of independent economic advisers is forecasting that Germany’s GDP will flat-line for the rest of this year. They are projecting a slight increase of just 1% for next year.
To be sure, Germany’s economy has taken a big hit, having contracted in both of the last two years. The new Chancellor Friedrich Merz’s government was only sworn in earlier this month. Now, they are proactively working to tackle those challenges. Most recently, they are implementing the nation’s largest-ever infrastructure investment package. This new initiative has the potential to offer remarkable opportunities for economic advancement over the next year.
Germany is, to put it mildly, in very choppy economic waters at the moment. External factors—even bigger than Trump’s tariffs and threats to trade—are looming dangerously over this rosy picture. These elements combine to create some very powerful headwinds for Germany’s economic landscape.
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