In the first quarter, Germany’s economy contracted by 0.4% year-on-year when adjusted for price effects. Excluding price and calendar effects, the GDP saw a 0.2% year-on-year decline.
Germany starts the year with slight growth after two years of recession, amidst predictions of economic stagnation in 2025. The German government recently downgraded its forecasts by 0.3 percentage points compared to previous reports.
Outgoing Finance Minister Robert Habeck stated last week, “We had to revise our forecasts for this year down by 0.3 points, and now we estimate no growth. The main reason for this is President Donald Trump’s tariff policies in the U.S.”
The top five German economic institutes also lowered their forecasts, now anticipating near-stagnation with a marginal growth of 0.1%, impacted by geopolitical tensions and Trump’s protectionism. Their autumn forecasts had predicted a modest recovery of 0.8% in 2025.
The Ifo Institute expressed concerns of a potential economic contraction in Germany as soon as summer. Timo Wollmershäuser, head of economic research at Ifo, noted, “The tightening of the U.S. tariff policy accelerated the purchase of goods in the United States, benefiting German exports and industrial production in the first quarter, leading to a 0.2% GDP increase.”
He further explained, “The significant increase in tariffs on EU imports from April, along with the threat of further hikes, has negatively impacted the development of the German economy.”
“At the same time, industrial companies have reported a marked rise in uncertainty, making it more challenging than usual to assess their activities,” Wollmershäuser added. He highlighted that economic policy changes by the U.S. government pose significant risks, while swift decisions by Germany’s future government could present opportunities.
