Germany’s economy slows in Q2 2025

[Redator]

• Germany’s GDP fell 0.3% q/q in Q2 2025 (0.2 pp below the flash); y/y: –0.2% unadjusted, +0.2% calendar-adjusted. Previous quarters: +0.3% (Q1 2025), +0.2% (Q4 2024). Destatis’ annual revision altered earlier quarters by –0.7 to +0.6 pp.
• Demand & supply: consumption edged up (total +0.3% q/q; households +0.1%, government +0.8%), but investment –1.4% and negative net exports (exports –0.1%, imports +1.6%) dragged growth. By sector: construction –3.7%, manufacturing –0.3%, IT & business services +0.5%.
• Labour, incomes & peers: employment ~46m (stable), productivity/hour +0.3% y/y, wages +4.8%. Consumption rose faster than income (+3.7% vs +2.5%), cutting the saving rate to 9.7%. Germany –0.3% q/q vs EU +0.2% (y/y, cal-adj: Germany +0.2% vs EU +1.5%).

Final Destatis data show that in Q2 2025 the German economy contracted by 0.3% q/q (seasonally and calendar adjusted). That’s 0.2 pp worse than the flash estimate and a clear reversal after gains at the turn of the year (+0.3% in Q1 2025 and +0.2% in Q4 2024). Year over year, the picture is mixed: –0.2% y/y in constant prices without calendar adjustment and +0.2% y/y with it.

Germany GDP, source: Destatis

Demand: consumption holds up, investment disappoints, net exports drag

On the demand side, the only bright spot was consumption. Total consumption rose 0.3% q/q, of which household spending increased just 0.1% (below expectations) and government consumption rose 0.8%. That wasn’t enough to offset pronounced weakness in gross fixed capital formation: investment fell 1.4% q/q, including machinery and equipment –1.9% and construction –2.1%.

Foreign trade also weighed on growth: exports slipped 0.1% (goods –0.6%, services +1.4%), while imports rose 1.6%, implying a negative net export contribution to GDP.

In y/y terms, private demand looks better: consumption +1.5% (households +1.2%, mainly on food; services grew weakly), while government consumption rose 2.1%. Against that backdrop, investment declined 1.9% y/y (machinery –3.9%, construction –2.9%). External trade was weak: exports –2.4% y/y (goods –3.6%, services +1.8%) alongside imports +3.3% y/y (goods +4.7%, services +0.3%).

Supply side: construction and manufacturing down, tech services up

On the supply side, gross value added fell 0.2% q/q. The steepest drop was in construction (–3.7%), partly unwinding a strong Q1. Manufacturing –0.3%, with declines in most branches; the automotive and transport segment was a notable exception. Trade–transport–accommodation–food services recorded –0.6%, while public services, education and health were slightly positive (+0.1%). Modern sectors stood out: IT and communications and business services +0.5%.

Compared with a year earlier, total GVA was down 0.7%, with industry –2.2%, construction –6.9% and services stagnating (0.0%).

Labour market and productivity: stable employment, mixed efficiency

Employment held around 46 million people (virtually unchanged y/y). Hours worked fell 0.5% y/y, which, together with slight GDP growth, translated into labour productivity per hour up 0.3% y/y, but productivity per person down 0.2% y/y. In other words: firms worked fewer hours, were a bit more efficient per hour, but saw no improvement per job.

Germany unemployment change, source: tradingeconomics.com

Incomes, wages and savings: consumption outpaces income

At current prices GDP rose 2.7% y/y, and gross national income 3.1%. Wages were up 4.8% (average gross wages +4.3%, net +3.6%), while property and entrepreneurial income fell 3.5%. Notably, consumption grew faster than income (+3.7% vs +2.5%), lowering the saving rate to 9.7% from 10.8% a year earlier. This signals that households are sustaining spending partly by drawing down buffers.

Versus peers: Germany at the back of the European pack

Quarter on quarter, Germany –0.3% lags clearly behind the EU overall (+0.2%). Among large economies: Spain +0.7%, France +0.3%, Italy –0.1%; outside Europe, the US +0.7%. On an annual (calendar-adjusted) basis Germany +0.2% y/y versus EU +1.5% y/y—the divergence persists.

Revisions: adjustments up and down reaching back to 2008

Destatis conducted its annual revision of the time series from 2021, with quarterly changes ranging from –0.7 to +0.6 pp. Smaller tweaks reached back to data from 2008, including improved coverage of multinational groups’ activity. Technically, this enhances historical comparability, though the current cyclical picture—after the Q2 downgrade—is weaker.

Markets reaction: DAX and EURUSD

DAX index and 10-year yield german bonds, daily interval, source:TradingView

The DAX index remains in a medium-term upward trend. However, for the past few months it has been moving within a consolidation range between 23500 and 24600 points. A key condition for the continuation of the rally is a breakout above the upper boundary of this range, which could pave the way for further gains. The yield on 10-year German government bonds currently stands at 2.73%, reflecting stability in the debt market.

In the currency market, the EURUSD is trading at 1.1713, testing the upper boundary of the corrective pullback. The weakening of the dollar is linked to Federal Reserve Chair Jerome Powell’s speech in Jackson Hole, which was interpreted as supportive of upcoming interest rate cuts in the United States. A sustained breakout above 1.1720 could signal a new upward impulse in the main currency pair.

EURUSD, daily interval, source: TradingView

Takeaways: a technical setback and narrowing sources of growth

The economy entered H2 2025 with weak momentum: investment and exports remain headwinds, while consumption—though positive—is only marginally better than stagnation. On the supply side, construction and much of manufacturing are a drag, whereas IT and business services are rare islands of growth. A stable labour market limits the downturn, but the falling saving rate suggests the consumption boost may have limited durability.

Q2 brings a technical setback and confirms that a durable recovery will require unlocking investment and improving export competitiveness—otherwise Germany will continue to lag the EU average.

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