The German economy got a big growth spurt from the weather. GDP grew by 0.2% on the previous quarter in Q1 2025. The economy has rebounded after a -0.2% contraction at the end of 2024. This advancement brings a bit of optimism that we may have dodged the technical recession. Yet the broader economic picture is still very shaky, with the year-on-year GDP continuing to contract by 0.2%. Analysts are cautioning that for the third consecutive year, Germany will fall into a recession. If true, it would be the first national economic decline ever for one of the planet’s biggest economies.
Germany’s economic recovery is tentative. The incremental GDP bump isn’t nearly enough to reverse the decades of economic stagnation that has hurt so many across the country. This mix of high uncertainty out of global trade patterns and geopolitical upheavals adds stress to an already stressed economy. Importantly, U.S. tariffs enacted during Donald Trump’s presidency have hurt Germany’s short-term outlook.
Our current highways, bridges, ports, and rail systems – whatever their shortcomings – are the backbone of our economy. Infrastructure improvements are not the only reason for economic growth in Germany, experts argue. Rather, they focus on the need for sector transformation and the search for new growth opportunities. This is a critical foundation for sustaining our economic recovery in the long run.
High-frequency indicators shown in Figure 2 suggest that private consumption and investments became major engines of this economic activity during this period. So too should the substantial fiscal stimulus recently announced by an incoming German government — which is likely to provide a significant growth impulse in coming quarters. Policymakers should focus on fixing the problems underneath that engine — especially those that hurt the American economy’s fundamental engine. If they don’t, stagnation and recession might last much longer.
The current economic environment demands an artful balance of navigating uncharted waters. While the moderate growth in the German economy can offer some hope, it is not without its stormy seas still left to navigate. A strategic approach to building more economic resilience and flexibility will be key in addressing these challenges.