GDP skirts technical recession in Q1

Economy rebounds as expected: According to a preliminary reading, at the outset of 2025, Germany continued its pattern of swinging in and out of the doldrums, expanding 0.2% on a seasonally and calendar-adjusted quarter-on-quarter basis in Q1 (Q4 2024: -0.2% qoq s.a.). As a result, the economy roughly surpassed its 2020 size, when the pandemic struck. The result was broadly in line with market expectations and our Consensus, but was again below the Euro area average. On an annual basis, economic activity dropped 0.4% in Q1, matching the previous period's reading.

Private spending and fixed investment underpin tepid recovery: While not providing a complete breakdown, the statistical office noted that Germany’s sequential recovery was underpinned by improvements in private spending and total investment; households and businesses likely benefited from a cumulative 150 basis points of ECB rate cuts since June 2024. Monthly data bears this out, as retail sales continued to rise in Q1. Meanwhile, front-loading ahead of U.S. import tariffs likely buttressed industrial output and goods exports, which recovered from Q4’s dip on average in January–February. A complete breakdown of the GDP figures will be released on 23 May.

Recovery to regain footing at the tail end of 2025: Our panel sees the German economy grinding to a halt in Q2 and posting another underwhelming result in Q3 as the effect of Trump’s tariffs shakes an already fragile cyclical recovery. However, sequential growth should then ramp up, benefiting from healthy real wage growth and interest rate cuts plus the recently announced surge in government spending. 2025 as a whole should see an uninspiring rebound following two straight years of contraction, weighed on by a protracted malaise in the key industrial sector and a more adverse trade environment; Germany will remain miles away from its 10-year pre-Covid 2.0% growth average and remain the worst-performing in the G7. A U.S.-EU trade war is a downside risk, while the implementation of the recently pledged fiscal stimulus will be key to watch, given Germany’s lackluster public investment over recent years.

Panelist insight: ING’s Carsten Brzeski commented: “US tariffs, high uncertainty and fundamental shifts in trade and geopolitics will weigh on Germany’s near-term economic outlook. In the longer term, the announced fiscal stimulus will definitely boost growth in Germany. Implemented in the right way, investment in infrastructure should at least lead to a cyclical upswing. […] While today’s GDP report is welcome news, it doesn’t take away the risk that the German economy will remain in an – admittedly small – recession for the third consecutive year, for the first time ever.”

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