Economy of Germany experiences a slight contraction during the second quarter - Germany's economy experienced a minor downturn during the second quarter
The second quarter of Germany's GDP showed a slight decline, but the latest predictions suggest a modest but improving growth outlook in the fall and beyond.
According to economic experts, the decline in GDP was primarily due to lower investments in equipment and construction. Conversely, private and public consumption expenditures increased in the second quarter, despite expectations of an economic slowdown.
Thomas Theobald, an economic expert at the Institute for Macroeconomics and Business Cycle Research (IMK) of the Hans-Böckler Foundation, expected the economic slowdown in the second quarter. However, he remains optimistic about an economic recovery in Germany in the fall, despite recent trade negotiations between the EU and the USA.
The recovery is expected to strengthen notably in 2026 as the new government’s growth-oriented infrastructure and defense spending programs take effect. This fiscal support is crucial to offsetting the negative impacts of trade tariffs and lingering global uncertainties.
Private household consumption plays a central role in shaping the recovery’s strength. Its improvement is closely linked to consumer confidence and employment conditions, which in turn influence economic momentum into the fall and next year.
The stimulation of economic growth in the first quarter was due to companies accelerating exports, which may have been influenced by U.S. trade policy. However, there was no similar acceleration in exports in the second quarter, which may have contributed to the "more or less stagnation" of the GDP.
The decline in GDP in the second quarter was not due to lower private or public consumption expenditures. The consumption of private households in Germany is a key factor in determining whether the economic recovery in the fall will be "rather weak or dynamic".
Despite these positive signs, the outlook remains subject to risks from geopolitical issues, trade conflicts, and domestic fiscal debates, which may influence the pace and robustness of recovery in the coming months.
[1] ifo Institute, Kiel Institute for the World Economy, (2025). German Economic Outlook. [2] Deutsche Bundesbank, (2025). Monthly Report. [3] Federal Ministry of Finance, (2025). Economic Forecast. [4] German Council of Economic Experts, (2025). Annual Report.
- The finance ministry may need to reassess its employment policy in light of the upcoming economic recovery, ensuring that jobs are created to match the anticipated growth in private household consumption.
- Businesses, particularly those in the export sector, should closely monitor the community policy regarding trade negotiations between the EU and USA to mitigate potential risks and take advantage of opportunities arising from any agreements.
