Germany’s economy contracted by 0.3 percent in the second quarter of 2025 compared to the first, as demand from its largest trading partner, the United States, weakened after months of stockpiling in anticipation of U.S. tariffs.
On Friday, the nation’s statistics office revised its earlier estimate of a 0.1 percent decline, further dampening hopes for a steady recovery in Europe’s biggest economy this year.
Germany has been the only G7 economy to record no growth over the past two years, and ongoing trade tensions risk pushing it into a third consecutive year of recession—an unprecedented event in the country’s post-war history. Revitalizing the economy has become a central focus for the new government, particularly as concerns grow that U.S. President Donald Trump’s tariffs could further strain the export-dependent nation. A baseline U.S. tariff of 10 percent was introduced on April 5.
Industrial production and exports decline
In a bid to boost the economy, Germany’s government has introduced an “investment booster” that provides companies with enhanced depreciation options, alongside commitments to increase defence and infrastructure spending and lower corporate tax rates. However, the Ministry of Economy noted that additional measures will still be required.
The statistics office reported that industrial production performed worse than previously estimated. Household consumption for the second quarter was revised down to a modest 0.1 percent rise, reflecting updated data from service sectors such as accommodation and food services in June.
Government spending, meanwhile, grew by 0.8 percent compared with the previous quarter. Investment saw a sharp decline, falling 1.4 percent. Foreign trade also failed to provide any support to Germany’s economy, with total exports of goods and services slipping 0.1 percent during the quarter.
Urgent call for economic reforms
German Economy Minister Katherina Reiche called urgently for economic reforms on Friday after the federal statistics office reported a stronger-than-expected slump in gross domestic product in the second quarter.
“The figures illustrate the urgent need for action,” Reiche said in a statement, adding that “further-reaching and bold structural reforms are essential if the German economy is to become competitive”.
Manufacturing activity strengthens
The EU and U.S. reached a framework trade agreement in late July, but so far, only the baseline tariff of 15 percent has been put in place. The EU is still awaiting executive orders from the White House to define exemptions, including those for the automotive sector.
The U.S. remained Germany’s largest trading partner in 2024, with bilateral goods trade totaling $293 billion.
On a more positive note, Germany’s private sector showed a slight improvement in August, supported by stronger manufacturing activity as new orders picked up, according to Thursday’s HCOB Flash Germany Composite Purchasing Managers Index.
Germany’s economy is projected to improve in the coming quarters, supported by the European Central Bank’s interest rate cuts and a more expansionary fiscal policy. Still, the rebound is expected to be modest, constrained by structural weaknesses in the economy and the sharp rise in U.S. tariffs.
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