Germany's economy modest in Q1 2025, to face headwinds in Q2: Report

Averaged over January and February 2025, industrial output in Germany rose slightly on a quarterly basis, although developments across individual sectors were mixed. Production of consumer goods and intermediate goods recorded slight increases, whereas capital goods production remained below the previous quarter’s average, said the report.

Low-capacity utilisation in industry continues to weigh on firms’ willingness to invest. Meanwhile, retail sales grew further during the two months, indicating a marginal rise in private consumption, according to Bundesbank economists.

Overall, domestic and foreign demand for German industrial products remained sluggish at the beginning of the year, after showing slight signs of recovery last year. By contrast, when averaged over the first two months of the year, price-adjusted goods exports rose markedly on the quarter.

The country’s inflation rate fell again in March 2025. Headline inflation, as measured by the Harmonised Index of Consumer Prices (HICP), fell to 2.3 per cent, after standing at 2.6 per cent in February. Energy prices declined markedly on the month because of lower oil prices and the appreciation of the euro against the US dollar.

The US administration’s announcement of new tariffs may have played a role here, according to the Bundesbank’s economists. In February, exports to the United States expanded significantly again. However, provided that no such anticipatory effects occur again in Q2 2025, exports are likely to decline.

The report stated that in view of the US administration’s tariff policy, the outlook for Germany’s export business and industry remains gloomy overall.

The country’s employment fell marginally in February, as it had done in January. This was driven primarily by a decline in the number of self-employed persons, while the number of employees remained essentially constant overall. As seen before, there were sizeable differences across the various sectors of the economy. For instance, some services sectors—especially long-term care, healthcare and energy suppliers—continued to hire. In industry, by contrast, there were job losses in January. Overall employment is expected to remain broadly stable, added the report.

ALCHEMPro News Desk (SG)