Germany Reports Contraction in Q2 Economy
(MENAFN) Germany’s economy contracted slightly in the second quarter, erasing part of the modest growth it achieved earlier this year, as newly imposed U.S. tariffs took a toll on exports and broader economic performance.
Preliminary figures released Wednesday by the Federal Statistical Office (Destatis) revealed a 0.1% quarter-on-quarter drop in gross domestic product (GDP). This followed a 0.3% increase in the first quarter and was largely in line with economists’ forecasts.
"The German economy is losing momentum after a positive start to the year," the agency stated.
While consumer and government spending both rose, Destatis reported that weaker investment in machinery, equipment, and construction played a significant role in dragging overall growth into negative territory.
The slight contraction aligns with earlier projections from top economic research bodies. The ifo Institute in Munich had anticipated a slowdown in Q2, citing the adverse effects of U.S. trade actions on Germany's export-heavy economy.
Still, analysts emphasize that a full recovery remains possible. Geraldine Dany-Knedlik, head of economic forecasting at the German Institute for Economic Research (DIW), highlighted promising developments in industrial output and business sentiment, partly driven by domestic fiscal policy measures.
June’s ifo Business Climate Index indicated improving confidence, climbing for the seventh straight month to its highest level in over a year. While companies were more upbeat about current conditions, their expectations for the future remained restrained, reflecting continued concern over international trade tensions.
Over the weekend, U.S. President Donald Trump and European Commission President Ursula von der Leyen unveiled a new transatlantic trade agreement. However, the announcement was received with skepticism across Germany. Dany-Knedlik cautioned that "no tariff relief is expected from the deal," adding that "on the contrary, burdens on the German economy could increase."
Carsten Brzeski, global head of macroeconomic research at ING, said Q2 was the first period to fully reflect the impact of U.S. tariffs. He warned the negative trend may persist into the third quarter, estimating that a 15% U.S. tariff could reduce Germany's GDP growth by 0.1 to 0.2 percentage points.
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