German economy posts surprising 0.4% growth

German economy posts surprising 0.4% growth in first quarter. This figure is twice the initial growth estimate of 0.2%.

Rising exports and stronger consumer spending helped boost GDP during the period, though economic experts cautioned that this might have been a one-off as many transactions had been brought forward in anticipation of US tariffs announced by President Donald Trump in April.

Ruth Brand, president of the Federal Statistical Office, pointed to "surprisingly good economic development in March" as a key driver behind the higher growth figures.

She said production in the manufacturing sector and exports, especially of cars and pharmaceuticals, as producers tried to get ahead of the US tariffs, performed better than originally predicted.

"Anticipatory effects amid concerns over a brewing trade war with the US are therefore likely to have contributed to the positive development," the data office said in a statement.

"Donald Trump is boosting growth with his tariffs," said Thomas Gitzel, chief economist at Liechtenstein's VP Bank.

ING chief economist Carsten Brzeski described the first quarter of 2025 as the best for Europe's largest economy since the third quarter of 2022 – thanks to Trump. However, he warned of "a positive flash in the pan."

Private consumer spending also rose by 0.5% compared to the previous quarter. With declining inflation and significantly increased wages in some sectors, many people have more money in their pockets. Investments also grew, both in construction (up 0.5%) and in equipment (up 0.7%).

Is a third consecutive year of recession looming?

There have been some recent positive signs for the German economy. In the industrial sector, rising order numbers are creating a bit more optimism, and the economic mood is brightening. In May, the ifo Index rose for the fifth consecutive month and the economic institute's president, Clemens Fuest, said the German economy is slowly regaining its footing.

Expectations among German exporteurs also improved, with the corresponding ifo index raising from -9.4 in April to -3.0 in May.

Ifo survey director Klaus Wohlrabe said that while the current calm in the trade war unleashed by Trump was giving exporters some breathing space, "caution is advised as there is still no fundamental agreement between the US and the EU on the level of tariffs."

A modest upturn at the beginning of the year had been expected by many economists. However, Trump's erratic tariff policies have significantly worsened the outlook for Germany's export-driven industry, with GDP expected to stagnate in the second quarter.

Despite the glimmer of hope at the start of the year, the German economy is thus facing its third consecutive year without growth in 2025 – an unprecedented development in the history of the Federal Republic.

Although Trump has temporarily suspended some tariffs on imports to the United States, the general base tariff of 10% remains high. Additionally, the US has increased duties on imports such as cars and steel.

Stagnation expected for 2025

Forecasts for the German economy have recently been repeatedly downgraded. On Wednesday the Council of Economic Experts, known as the "Five Sages," predicted a stagnant economy for this year - the same forecast as the International Monetary Fund (IMF) and the European Commission.

Following a strong first quarter, the following quarters are likely to be weaker, said Bundesbank President Joachim Nagel at a meeting of the Group of Seven major industrialized countries in Canada.

"We also expect weak economic development for 2025, which could be described as stagnation."

Growth could return in 2026, the council said, predicting an increase of 1%. Planned multi-billion euro federal expenditures on defence and infrastructure are expected to stimulate the economy, according to economists.

Hope for reforms and end to tariff dispute

A resolution in the tariff dispute with the US and reforms could also give the economy a boost. Finance Minister Lars Klingbeil recently saw positive signals in the tariff dispute following talks among the Group of Seven (G7) major industrialized nations.

The economy is also relying on reforms from the new government. The federal cabinet will introduce an initial relief package for businesses by mid-July, Economy Minister Katherina Reiche has said. This is expected to include a reduction in electricity tax and initial labour market reforms.