Germany’s gross domestic product contracted by 0.3 percent in the second quarter of 2025, exceeding initial estimates of a 0.1 percent decline.
Official figures from the German federal statistics agency, Destati, highlighted the impact of U.S. tariffs on the nation’s export sector.
Exports of goods decreased by 0.6 percent during the period, while investments in machinery and equipment dropped 1.9 percent.
These declines reflect difficulties for manufacturers in the first complete quarter following the implementation of heightened U.S. tariffs.
The United States remains Germany’s primary trading partner, accounting for approximately 10 percent of its total exports, including automobiles and chemicals.
Household spending was lower than previously anticipated, and both manufacturing and construction sectors underperformed expectations.
Industrial production in June reached its lowest point since the 2020 pandemic. These factors have contributed to ongoing economic pressures, including elevated energy expenses and competition from China.
The economy experienced contractions of 0.9 percent in 2023 and 0.5 percent in 2024, marking consecutive years of recession.
Chancellor Friedrich Merz has prioritized revitalizing the export-driven economy through infrastructure upgrades and defense spending worth hundreds of billions of euros.
Recent data releases had sparked optimism for recovery, with business confidence reaching a peak in July after several months of gains.However, analysts like ING’s Carsten Brzeski attribute this uptick to temporary pre-tariff order surges rather than sustainable growth.
The Bundesbank has warned that full tariff effects could erase projected 0.7 percent growth for 2025, potentially leading to another recession.
A U.S.-EU trade agreement in late July aimed to prevent escalation, imposing a 15 percent tariff on most EU goods.
Automobiles face a 27.5 percent rate until the EU enacts laws removing duties on U.S. industrial items. Uncertainty surrounding the deal’s execution continues to affect German exporters.
Finance Minister Lars Klingbeil proposed tax increases to address a 30 billion euro budget shortfall in 2027, drawing criticism from conservative allies. Such measures could further dampen spending and investment by households and businesses. Prolonged discussions on fiscal austerity risk delaying economic decisions and prolonging stagnation into the next year.
Economic stagnation has also influenced migration patterns, with Germany recording a negative balance with Poland in 2024 for the first time in 25 years as 9,000 more Poles departed than arrived.
This shift stems from Germany’s prolonged recession and reduced job opportunities, alongside improving living standards in Poland. Migrants increasingly seek prospects in their home country or other regions amid Germany’s overreliance on exports and low public investment.
Security concerns have also played a role in this trend, as perceptions of deteriorating public safety erode appeal.
The U.K. has issued warnings about a high likelihood of terrorist attacks in Germany, referencing incidents at public venues. Similar advisories from the U.S. and Canada highlight threats at tourist sites, transportation hubs, and markets.
Structural issues, including high energy costs, low public investment, and an aging population, compound Germany’s stagnation. Overreliance on exports has exposed vulnerabilities to global shifts. Projections indicate zero growth in 2025, with modest recovery expected at 1.1 percent in 2026.
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