Germany’s economy contracted by 0.3% in the second quarter compared with the first three months of 2025, as demand from its top trading partner, the United States, slowed following months of stockpiling ahead of U.S. tariffs.
The federal statistics office revised its earlier estimate of a 0.1% decline, further dampening hopes of a meaningful recovery for Europe’s largest economy this year.
“It looks increasingly unlikely that any substantial recovery will materialize before 2026,” said Carsten Brzeski, global head of macroeconomics at ING.
Industrial output performed worse than initially assumed, while household consumption was revised to just a 0.1% increase, reflecting weaker activity in accommodation and food services. Government spending rose 0.8% compared with the previous quarter, but overall investment dropped 1.4%.
Foreign trade provided no boost either, with exports of goods and services slipping 0.1%. Although the EU and U.S. signed a framework trade deal in July, only the baseline 15% tariff has been implemented so far, leaving carve-outs for industries such as autos still pending.
The U.S. remained Germany’s largest trading partner in 2024, with two-way goods trade totaling €253 billion ($293 billion).
In more positive news, private-sector growth ticked up in August, led by stronger manufacturing orders, according to the HCOB Flash Germany Composite PMI. Analysts expect the economy to gradually improve in the coming quarters, supported by European Central Bank rate cuts and more expansionary fiscal policies.
“However, the recovery is likely to remain modest due to structural challenges and higher U.S. tariffs,” said Commerzbank economist Ralph Solveen.
