The German economy may contract in the second quarter, Germany’s central bank said on Thursday.
The Bundesbank said economic growth in the country likely increased slightly in the first quarter of 2025 but could suffer in the next quarter.
“Averaged across January and February 2025, industrial output rose slightly on the quarter,” the bank said, adding that this was, however, due to rather mixed trends in individual sectors.
The bank’s economists noted that low capacity utilisation in industry continues to weigh on business investment sentiment.
Retail sales continued to grow in January and February, indicating a slight increase in private consumption, the bank emphasised.
As German Economy Minister Robert Habeck noted, gross domestic product is likely to stagnate. In January, government economists were hoping for growth of 0.3 per cent in 2025. The October forecast was even more optimistic at 1.1 per cent. Habeck explains this by the uncertainty created by the trade war unleashed by US President Donald Trump. Two other factors are sluggish demand for German exports and declining competitiveness.
Habeck stated that the protectionist policy adopted by the US could seriously affect Germany’s economic growth, given how integrated the German economy is into global supply chains.
