The economic situation in Germany in May 2025

• In the first quarter of 2025, the German economy posted a modest recovery, with GDP increasing by 0.2% quarter-on-quarter, adjusted for prices, seasonal and calendar effects. The rebound was primarily driven by private consumption, investments and foreign trade – due to frontloading effects in anticipation of the announced US tariffs. In addition to a revival in consumer-related services, both manufacturing and the construction sector also benefited from favourable conditions, reflected in rising output and more positive sentiment indicators. Nevertheless, business expectations, particularly in the export-oriented manufacturing industry, remain subdued. As a result, a renewed economic slowdown as the year progresses cannot be ruled out.
• By the end of Q1, output in the manufacturing sector rose sharply, climbing by 3.0% month-on-month (adjusted for prices, seasonal and calendar effects). Industrial production and construction output saw a robust increase of 3.6% and 2.1% respectively. However, energy production fell by 1.8%. New manufacturing orders – especially from abroad – also picked up noticeably in March, rising by 3.6% compared to the previous month (adjusted for prices, seasonal and calendar effects). Here too, frontloading effects related to the expected US tariff hikes likely played a role.
• In March, price-adjusted retail turnover (excluding motor vehicles) edged up by 0.4% month-on-month. Compared to the same month last year, retailers reported a real sales increase of 3.0%. Meanwhile, new car registrations in April rose sharply, increasing by 10.6% over March. However, the more meaningful three-month comparison shows a decline of 6.9%. Year-on-year, April registrations were down slightly (-0.2%). Current leading indicators point to a slight improvement in consumer sentiment, through starting from a low level.
• In April, the inflation rate eased further, falling to 2.1%. The rise in food prices has weakened again but remains above the overall inflation rate, while energy prices declined noticeably. In contrast, core inflation saw a marked rise. Going forward, inflation is expected to remain around the 2% mark, helped by falling energy and commodity prices, moderate increases in collectively agreed wages and subdued overall demand.
• Despite a weak spring revival, the labour market performed slightly better in April compared with the previous months. Seasonally adjusted unemployment rose by just 4,000, while total employment increased by 6,000 in March. However, given the continuing high level of uncertainty stemming from US trade policy and the persistently weak employment outlook, a turnaround in the labour market is not yet in sight.
• According to official data, the number of corporate insolvencies rose by 13.0% in February 2025 compared to the previous month, and by 15.9% year-on-year. With 2,068 applications filed, this marked the highest monthly figure since July 2015. The IWH Insolvency Monitor also rose, with April seeing an 11.4% increase in insolvencies among partnerships and corporations compared to March.

Modest economic revival at the start of the year

Germany’s economic performance showed a modest recovery in the first quarter of 2025. According to a flash estimate from the Federal Statistical Office, GDP increased by 0.2% quarter-on-quarter, (adjusted for price, seasonal, and calendar effects). Positive contributions to growth were reported to have come primarily from private consumption and investment. Net foreign demand is also likely to have provided a tailwind, as export activity picked up in early 2025 – driven in part by frontloading effects due to the announcement of impending US tariff hikes.

On the production side, current indicators point to a somewhat more balanced development across economic sectors compared to recent quarters. After seven consecutive quarters of contraction, value added in the strongly export-oriented manufacturing sector appears to have recovered somewhat, supported by revived demand from abroad. This is indicated by the strong increase in March’s industrial output – particularly in the key industries of motor vehicles and parts, pharmaceutical and chemical products and mechanical engineering. Despite the high level of trade policy uncertainty and the recent dampening of business expectations, the overall business situation in the industrial sector proved to be relatively robust in Q1. The construction sector is also likely to have seen increased activity, aided by mild weather conditions. Consumer-related service sectors – especially retail, transport, and hospitality – appear to have performed positively as well. This is indicated by rising turnover in retail trade and in the transport and warehousing segments.

The slight economic recovery at the start of the year was foreshadowed by recent improvements in sentiment indicators, particularly regarding the current business situation. Consumer sentiment, as measured by the GfK Consumer Climate Index and the HDE Consumption Barometer, also trended more positively in recent weeks. However, in light of the announced – though in some cases temporarily suspended – US tariff increases, current surveys on business expectations in both the industrial and service sectors have deteriorated again. Against this backdrop, a renewed economic slowdown as the year progresses cannot be ruled out.

Short-term frontloading effects, but dampened global outlook thereafter

Following slumps and volatility in global financial markets in response to the sweeping US tariff announcements at the start of April, the situation has since stabilised somewhat. Equity prices have recovered in many markets, and sentiment indicators based on financial markets have made up for part of April’s steep losses. However, the Sentix index for the global economy remains in negative territory, at -3.7 points. While expectations among surveyed financial investors have brightened somewhat again – with the expectations component rising from -19.6 to -1.6 points – assessments of the current situation have deteriorated further. Here the index has dropped from -4.0 to -5.7 points, the lowest level since the beginning of 2023.

In contrast, global industrial production is likely to have expanded further in Q1, supported by frontloading effects. After a minor dip in January, industrial output rose by 0.8% again in February (seasonally adjusted), marking a 2.9% increase year-on-year. However, early indicators suggest the global economy may slow in the coming months. S&P Global’s sentiment indicator declined in April for both the service and industrial sectors. Despite falling from 52.0 to 50.8 points, the composite index remains above the growth threshold, but points to weaker growth in the global economy than in the previous month.

Following gains around the turn of the year, global trade moved sideways in February compared to the previous month but at +2.9%, was still noticeably higher than in the same month last year. February data on wold trade show that US goods imports declined only marginally from January’s strong 12.2% rise and remained elevated – another sign of frontloading due to anticipated US tariffs. This is further supported by current container throughput data: March imports at West Coast US ports – key hubs for trade with Asia – were 12% above their level one year earlier. Nonetheless, the first signs of weakening are emerging in global maritime trade, with the RWI/ISL Container Throughput Index falling to 135.3 points in March (seasonally adjusted), down from 137.6 in February. After container handling at European ports had already fallen in February, maritime trade contracted in nearly all world regions at the end of Q1. Given ongoing uncertainty around US tariff policy, the global trade and economic environment remains particularly fragile. Beyond immediate effects on trade flows, there is also potential for impacts on global production and investment activity.

German exports picked up noticeably in Q1

The upward momentum in German exports observed since January was interrupted toward the end of Q1. In March, nominal exports of goods and services declined slightly, dropping by 0.4% month-on-month (seasonally and calendar adjusted), following increases of 1.6% in January and 2.0% in February. However, in the less volatile three-month comparison, exports still posted a robust gain of 3.2% in Q1 – likely bolstered by frontloading in goods trade ahead of the anticipated US tariff hikes. Exports to the United States rose strongly in February, up by 9.0%, before adding another 2.4% in March. Trade with EU Member States also grew by 3.1%. Particularly strong export growth was seen in shipments to China, which jumped by 10.2%. On the import side, nominal imports of goods and services fell by 1.2% in March month-on-month (adjusted for seasonal, and calendar effects). Nonetheless, quarterly imports, like exports, were still higher than in Q4 2024, up 1.1%. As the decline in exports was less pronounced than in imports, Germany’s monthly trade surplus rose from €13.4 billion to €14.6 billion (seasonally adjusted) in March compared with the previous month.

After several months of rising prices, import prices fell by 1.1% in March (seasonally adjusted), while export prices edged down by just 0.3%. As a result, the terms of trade improved significantly, up 0.8% compared to February. In real terms, the decline in both exports and imports was therefore likely smaller than the nominal figures suggest.

Looking ahead, leading indicators have recently again deteriorated again for the most part amid erratic US tariff policy and the implementation of new tariffs in April.

Export expectations in April fell noticeably across most sectors, with the ifo Export Expectations index dropping from -2.3 to -9.8 points. Key export sectors such as vehicles, mechanical engineering, and chemical products are now anticipating declines in outbound shipments. New manufacturing orders rose in March, up 4.7% month-on-month (seasonally adjusted), with particularly strong demand from the euro area (+8.0%). There was a marked increase in foreign orders for consumer goods and capital goods, up 14.2% and  6.2% respectively, while demand for intermediate goods dipped slightly, falling 0.5%. However, despite the March rebound, foreign orders for Q1 overall were still down by 1.8% compared to the previous quarter.

Overall, export activity in the first quarter likely benefited from frontloaded orders in response to the announced US tariff increases. However, leading indicators point to a renewed weakening of the global economy and foreign demand. Therefore, a further slowdown in Germany’s foreign trade is expected in the coming months.

Industrial Output Rebounds in the first quarter

According to the Federal Statistical Office, output in the manufacturing sector rose sharply in March, increasing by 3.0% month-on-month after a decline of 1.3% in February (adjusted for price, calendar and seasonal effects). Industrial production grew by a robust 3.6%, while construction output increased by 2.1%. In contrast, energy output fell by 1.8%.

Most industrial sectors recorded positive developments. Pharmaceutical products saw a particularly strong increase of 19.6%. Notable growth was also reported in motor vehicles and parts (+8.1%), mechanical engineering (+4.4%), and metal products (+2.1%). Chemical products (+2.0%), electrical equipment (+3.7%), and computers, electronic and optical goods (+2.4%) also saw healthy growth. On the downside, production fell in food and animal feed (-1.4%), coke and petroleum refining (-4.5%), the clothing industry (-2.2%), and paper and cardboard manufacturing (-0.2%).

For the first quarter of 2025 as a whole, output in the manufacturing sector rose by 1.4% compared with the final quarter of 2024. Industry (+1.7%), construction (+0.7%), and energy generation (+1.0%) all contributed to this growth. However, output in the manufacturing sector in the first quarter still remained 2.0% below the level of the previous year. New industrial orders also rose markedly in March following stagnation in February. Orders increased by 3.6% compared to the previous month (adjusted for price, calendar and seasonal effects). Foreign demand grew more strongly than domestic demand, rising by 4.7% compared to a 2.0% increase in domestic orders. Orders from the eurozone saw robust growth (+8.0%), while those from outside the euro area also increased (+2.8%). Excluding large-scale orders, the overall increase was 3.2% over the previous month.

However, over the first quarter as a whole, new orders in manufacturing declined by 2.3% quarter-on-quarter. Domestic orders fell by 3.3% and orders from the non-eurozone by 3.1%, while orders from the eurozone posted a slight increase of 0.3%.

The sharp rise in industrial output and orders towards the end of the first quarter likely reflects anticipation of upcoming US tariff measures. Nonetheless, the uncertainty surrounding US trade policy is weighing on business sentiment and export expectations, suggesting a potential weakening in industrial activity as the year progresses.

Retail sales are stagnating, but early indicators show signs of improvement

Retail turnover (excluding motor vehicles), adjusted for prices, rose slightly, up by 0.4% in March compared to the previous month. Compared to March 2024, real turnover increased by 3.0%. Food retailing also edged up by 0.5%, while internet and mail-order sales grew by 0.9% month-on-month and by a notable 9.7% year-on-year.

Passenger car registrations rose by 10.6% in April over the previous month. However, over a three-month average, registrations declined by 6.9%. Compared with April 2024, the decline was marginal, at 0.2%. Private registrations rose by 8.5% in April month-on-month, but fell by 8.8% over the three-month period. Commercial registrations increased by 11.7% in March. The hospitality sector reported a nominal sales decline of 1.2% in February versus the previous month; price-adjusted, the drop was 1.7%. Compared to February 2024, real turnover fell by 3.2% and nominal turnover increased slightly, up 0.8%. The ifo Business Climate Index for retail (including motor vehicles) fell by 3.2 points to -25.8 in April. Assessments of the current situation dropped by 3.5 points to -16.9, while expectations fell by 2.9 points to -34.2.

Consumer sentiment is showing early signs of recovery. According to GfK forecasts, the consumer climate index is expected to rise by 3.7 points to -20.6 in May. For April, a modest increase of 0.3 points to -24.3 was reported. Income expectations and willingness to spend improved, while the propensity to save declined significantly, further brightening the outlook. The HDE consumer barometer also showed a slight improvement in April.

Combined with rising real incomes, this improvement in sentiment is expected to support consumer spending over the remainder of the year. 

Inflation continues to ease, down to 2.1%

The inflation rate in April fell slightly again to 2.1% year-on-year. Compared with March, consumer prices rose by 0.4%. Food inflation eased to 2.8%, though it remains above the overall inflation rate. Energy prices dropped significantly, down by 5.4% year-on-year, reinforcing their dampening effect on inflation.

Core inflation (excluding energy and food) rose significantly, up to 2.9%, driven largely by a 3.9% increase in service prices. This upturn is likely due in part to the late Easter holidays this year, which fell in mid-April compared to late March the previous year – typically a period associated with higher costs for travel, hospitality, and accommodation. At upstream production levels, price pressures eased slightly. Producer prices fell by 0.7% month-on-month in March and by 0.2% year-on-year. Import prices dropped significantly, down by 1.0% month-on-month, and were only 2.1% above their year-earlier level. Wholesale prices fell by 0.2% in March versus February, but remained 1.3% higher year-on-year, largely due to food prices.

Spot market prices for natural gas remained above year-earlier levels. After strong increases earlier in the year, the TTF base load price recently stood at around €35/MWh, about 20% higher than a year ago. Gas prices rose by nearly 6% compared to the previous month. Market expectations point to natural gas prices stabilising around €30/MWh in the coming quarters. Brent crude was recently priced at around €58 per barrel, down roughly 24% year-on-year but up 2.4% month-on-month.

Inflation is expected to remain around the 2% mark in the coming months, supported by lower energy and commodity prices, moderate wage increases, and subdued overall demand.

Labour market sees modest spring upturn

Despite a relatively weak spring upswing, the labour market performed slightly better in April than in previous months. Seasonally adjusted unemployment rose by just 4,000, while underemployment fell slightly, down by 3,000. The increase in unemployment was driven by joblessness in the SGB III scheme (insurance-based support), whereas unemployment in the SGB II scheme (basic income support) fell slightly. Employment rose slightly in March, increasing by 6,000 (seasonally adjusted), while employment subject to social security contributions grew by 12,000 in February. However, overall employment has largely stagnated in recent months. Short-time work (Kurzarbeit) remained at 240,000 in February, with a slight downward trend in new applications.

Labour market indicators stabilised in April, despite trade policy uncertainty. However, both the IAB labour market barometer and the ifo Employment Barometer remain at historically low levels, suggesting a continued increase in unemployment in the near term. While employment prospects have improved somewhat in manufacturing, trade, and services, overall momentum continues to decline. Given the persistent uncertainty surrounding US tariff policy, a marked improvement in labour market conditions is not yet in sight.

Corporate insolvencies reach 10-year high

The number of corporate insolvencies rose sharply in February 2025, increasing by 13.0% month-on-month and 15.9% year-on-year to 2,068 cases, marking the highest monthly level since July 2015 (2,187 cases). From November to January, insolvencies had remained around 1,800 per month. The number of employees affected and the estimated claims also increased significantly compared with the previous month. Multiple factors continue to drive this upward trend in insolvencies, including subdued overall economic activity, structural challenges, rising costs, and geopolitical uncertainty.

The more narrowly defined and timelier IWH Insolvency Trend, covering partnerships and corporations, recorded 1,626 insolvencies in April, up 11.4% month-on-month and 20.9% year-on-year. The IWH expects insolvency numbers to decline in the coming months, assuming small-scale cases start to return to long-term average levels.

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[1] This report is based on data that was available as of 13 May 2025. Unless stated otherwise, these are rates of change against the respective preceding period on the basis of price-adjusted figures which have also been adjusted for calendar-day and seasonal variations.