Germany’s economy shrank by 0.3% in the second quarter of 2025, deepening concerns over the country’s recovery prospects as US tariffs weighed heavily on exports.
The Federal Statistics Office on Thursday revised its initial estimate of a 0.1% decline, citing weaker-than-expected industrial output and softer household spending. The revised figures underscore the challenges facing Europe’s largest economy, which has struggled to generate growth over the past two years.
Economists warn that trade frictions with the United States could push Germany into a third consecutive year of recession—an unprecedented outcome in the post-war era. “It looks increasingly unlikely that any substantial recovery will materialise before 2026,” said Carsten Brzeski, global head of macroeconomics at ING.
The US, Germany’s top trading partner, had seen months of frontloaded demand ahead of tariffs introduced by President Donald Trump’s administration. A baseline tariff of 10% took effect in April, followed by a 15% levy in July under a framework deal with the European Union. However, carve-outs for key industries such as automotive manufacturing have yet to be finalised, leaving exporters in limbo.
In 2024, Germany’s two-way trade in goods with the US totaled €253 billion, making the American market critical for its export-driven economy.
The latest data showed no positive contributions from foreign trade, with exports down 0.1% compared with the previous quarter. Investment fell sharply by 1.4%, while household consumption rose only 0.1%, a downgrade from earlier estimates due to weaker performance in accommodation and food services. Government spending, however, provided a modest boost with a 0.8% increase.
The German government has pledged to revive growth through an “investment booster” package that includes improved depreciation rules, higher infrastructure and defense spending, and corporate tax cuts. But the Economy Ministry acknowledged that more support would be necessary. “What has been decided so far is not enough, more is needed to make Germany competitive again and put it back on track for growth,” a ministry spokesperson said.
Despite the bleak quarterly figures, some indicators point to cautious optimism. The HCOB Flash Germany Composite Purchasing Managers Index showed a slight uptick in private-sector activity in August, led by a rebound in manufacturing orders. Economists at Commerzbank noted that upcoming interest rate cuts by the European Central Bank, coupled with expansionary fiscal policy, could provide momentum.
“However, this upturn is likely to be only moderate due to the structural problems of the German economy and the significantly higher US tariffs,” said Commerzbank senior economist Ralph Solveen.
For now, policymakers in Berlin face mounting pressure to accelerate reforms and shield the economy from worsening global trade tensions.
