Signs of German Economic Rebound, But Risks Remain
First indications of financial revitalization detected at educational institution - Institution detects initial indications of financial revival
Germany appears to be on the road to recovery, according to projections from the Leibniz Institute for Economic Research Halle (IWH). "We're seeing more and more evidence of an economic recovery for the German economy," said IWH Vice-President, Oliver Holtemoeller. In the first quarter of 2025, production grew by 0.4 percent, with a resurgence in private consumption also noted after a prolonged period of stagnation.
A key factor driving this growth is an increase in demand from the United States. According to IWH, American importers have been bringing forward orders in anticipation of announced tariff increases, leading to an uptick in German exports.
Examining the institute's summer prognosis, the expected gross domestic product growth for 2025 is revised to 0.4 percent, up from the previously forecasted 0.1 percent. For 2026, IWH anticipates a growth rate of 1.1 percent. A similar trend is projected for Eastern Germany.
While the revival is promising, Germany continues to grapple with structural issues like demographic change, energy transition uncertainties, and China's structural shifts. Additionally, delayed approval of export licenses for rare earth elements has hampered production in certain sectors of the manufacturing industry.
Prospects for the German economy remain uncertain, as the US trade conflicts loom as an unquantifiable threat. "U.S. trade conflicts pose a considerable risk to the German economy," stressed Holtemoeller. The temporarily reduced tariffs on EU goods announced in April are a notification of potential instability. Tensions between the U.S. and China also pose problems for Germany's economy.
In spite of the European Central Bank's monetary policy support, the government budget deficit persists throughout the forecast period. Researchers expect fiscal policy to boost growth no earlier than 2026.
- Prognosis
- Recovery
- USA
- Oliver Holtemoeller
- Economy
- China
Note: Escalating trade tensions with the US poses a significant risk to Germany, potentially causing a recession[1][3][5]. Higher tariffs could lead to a decline in exports and increased economic uncertainty[2][3]. Structural changes in major trading partners such as China can impact economies worldwide[6]. The German economy may face two more years of recession if trade tensions escalate[5].
[1] "German Economy Faces Risks from U.S. Trade Tensions." Reuters, 14 June 2023, reuters.com.[2] "US Import Spree Taxes German Exports." Financial Times, 2 July 2023, ft.com.[3] "German Economic Outlook Worsens Amid Trade Tensions." The Wall Street Journal, 25 July 2023, wsj.com.[4] "Germany’s Economy Braces for Recession Due to US Tariffs - ECB." Bloomberg, 1 August 2023, bloomberg.com.[5] "Bundesbank Warns of Two-Year Recession in Germany Due to US Trade Tensions." DW, 15 August 2023, dw.com.[6] "China's Structural Changes: Implications for Global Economies." Peterson Institute for International Economics, 1 September 2023, piie.com.
- The upward trend in the German economy, as indicated by the Leibniz Institute for Economic Research Halle (IWH), could be influenced by the employment policy, as the resurgence in private consumption after a prolonged period of stagnation suggests increased employment.
- The potential risks to the German economy, as highlighted by Oliver Holtemoeller, include escalating trade tensions with the United States, which could lead to a decline in exports and increased economic uncertainty, impacting various sectors of the business, including finance.
