The economic situation in Germany in June 2025

• The overall economic momentum in the first quarter was somewhat stronger than initially reported, with GDP rising by 0.4% quarter-on-quarter after adjusting for price, seasonal and calendar effects. Alongside a continued recovery in private consumption and a revival in investment activity, pull-forward effects in exports linked to announced US tariffs also played a role. Current sentiment indicators remain at a low level and present a mixed picture; uncertainty regarding US trade policy remains very high. Consequently, despite expectations of stabilising private consumption, another externally driven slowdown of the German economy cannot be ruled out for the remainder of the year.
• Industrial output declined by 1.4% month-on-month in April (price, calendar and seasonally adjusted), following a marked increase in March. Both manufacturing (-1.9%) and energy production (-1.6%) decreased, while construction output rose significantly by 1.4%. In contrast, new manufacturing orders continued to grow, albeit more modestly, up 0.6%. The very volatile developments in certain sectors likely reflect the trade policy disruptions caused by US tariff measures.
• Real retail sales (excluding motor vehicles) fell by 1.1% month-on-month in April, after being revised sharply upwards to +0.9% in March. Compared to April 2024, retail trade reported a real sales increase of 2.3%. New passenger car registrations decreased by 5.6% in May following a strong increase in the previous month; the more reliable three-month comparison shows a 2.4% decline. Compared to May 2024, registrations rose by 1.2%. Leading consumer indicators mostly point to a modest improvement in the still subdued consumer sentiment.
• Inflation remained steady at 2.1% in May. Food price inflation stayed comparatively high at 2.8%, while energy prices dropped significantly by 4.6% compared to the previous year. The core inflation rate declined slightly to 2.8% in May. Going forward, inflation is expected to stabilise at the current level. Moderate upward pressure on energy and commodity prices is being offset by less dynamic wage growth under collective agreements and subdued overall demand.
• After a weak spring rebound, no labour market improvement is expected in the second quarter either. Seasonally adjusted unemployment increased by 34,000 in May, while employment almost stagnated in April, rising by only 3,000. Leading indicators improved slightly in May but continue to point to a subdued labour market outlook.
• Official data show a 3.6% month-on-month decline in corporate insolvencies in March 2025, but a 10.6% increase compared to March 2024. This resulted in a total 13.1% rise in insolvencies for the first quarter compared to the previous year. The IWH insolvency monitor for corporations recorded a 9.1% drop in May compared to April, but a 17.0% increase relative to May 2024.

Temporary growth boost – persisting uncertainties

In Q1 2025, according to detailed GDP data from the Federal Statistical Office, the German economy grew somewhat more strongly than initially reported in the flash estimate at the end of April. GDP increased by 0.4% quarter-on-quarter, after adjusting for price, calendar and seasonal effects, more than offsetting the previous quarter’s decline. Impetus for growth stemmed partly from foreign trade, as US companies accelerated orders ahead of announced tariff increases, substantially raising German exports to the US. Additionally, investment activity picked up at the start of the year, supported by rising public and private construction investment (partly weather-related), and a robust expansion of public equipment investment driven by defence procurement. Private consumption also showed a marked improvement, continuing its recovery from mid-2024.

The Federal Statistical Office also reported a notable decline in the savings ratio, reflecting ongoing increases in nominal and real wages in Q1 – though these were somewhat dampened by the expiry of inflation compensation bonuses. As in previous quarters, wage growth for lower-income earners was significantly stronger (7.2% year-on-year) than for the overall economy (3.6%).

Given the persistent high uncertainty about further US tariff policies, current economic sentiment indicators remain mixed: while the ifo Business Climate Index showed a marked recovery in May, particularly in manufacturing, and ZEW expectations rose significantly, the S&P Global Purchasing Managers’ Index (PMI) Composite for Germany fell below the 50-point threshold, indicating a slowdown. Consumer sentiment measured by the GfK Consumer Climate and HDE Retail Climate improved further in June from a low level, and the ifo Retail Business Climate also improved noticeably in May. Together with rising real wages, these signals point to a sustained recovery in private consumption this quarter.

However, externally oriented sectors remain affected by the threat of tariff escalation, which – along with the fading pull-forward effects – is reflected in the recent decline in foreign demand from outside the euro area, falling goods exports, a slowdown in industrial production in April, and highly volatile ifo export expectations. While some short-term pull-forward effects may still occur, medium-term rebound effects are likely. Despite a promising start to the year, the economic outlook remains cautious amid uncertainties around US trade policy announcements and decisions, and another slowdown of the German economy with ongoing volatility cannot be excluded in the coming months.

Global economy: headwinds from tariffs and uncertainties

Global industrial production rose by 0.5% month-on-month in March (seasonally adjusted), ending Q1 with a robust 3.7% year-on-year increase, partly due to US-related pull-forward effects. However, some leading indicators for the global industrial cycle have since weakened: the S&P Global Manufacturing PMI for the world dropped further from 49.8 in April to 49.6 in May, indicating continued contraction of global industrial production. Conversely, sentiment in services recovered after a decline the previous month, with the index rising from 50.9 to 52.0 points, suggesting a slightly higher expansion rate. The overall composite index rose by 0.4 points to 51.2, signalling moderate global economic growth. The financial-market-based Sentix index turned positive again in June, standing at 3.6 points, indicating a cautiously optimistic global outlook.

Global trade in goods surged by 2.2% in March (seasonally adjusted), 6.5% above the previous year. US import activity rose sharply by 5.6%, building on earlier gains since the start of the year, reaching nearly one-third above March 2024 levels. China also contributed strongly, with exports up by 7.6%. These figures suggest that US companies have supported trade through accelerated orders and stockpiling since the start of the year. Overall, global trade in the first quarter increased by 2.0% quarter-on-quarter, after 0.6% growth in the final quarter of 2024. At the beginning of the second quarter, impacts of US tariffs on container throughput appear limited; the RWI/ISL Container Throughput Index rose from 136.2 to 137.3 in April, almost reversing the decline seen in March. Port activity increased in both European and Chinese ports. In the key US West Coast ports, which are important for trade between the US and China, no significant effects on import volumes were observed in April.

International organisations such as the OECD and the World Bank forecast a marked slowdown in global economic prospects following the tariff-induced pull-forward effects seen in the first quarter, assuming tariffs remain in place until the end of May. In light of significantly higher trade barriers, persistent trade policy uncertainty, and increased financial market volatility, global growth expectations for 2025 and 2026 have been revised notably downward to rates below 3% – a marked decline compared to the beginning of the year. These downward revisions are primarily attributable to an expected slowdown in economic momentum in advanced economies, particularly in the United States. The increased uncertainty is expected to dampen business investment, while tariff increases – after initial pull-forward effects – will have a direct negative impact on global trade. Accordingly, both OECD and World Bank June forecasts anticipate world trade growth rates of only around 2 to just under 3% in 2025 and 2026.

German exports stagnate at the beginning of the second quarter

Following previous increases, exports moved sideways at the beginning of the second quarter: in April, nominal exports of goods and services seasonally and calendar adjusted declined slightly by 0.1% compared with the previous month, but in the less volatile three-month comparison they remained clearly positive at +3.0%. Goods deliveries to countries outside the EU fell by 4.8% in April compared with the previous month. This was due, among other things, to significantly lower exports to the USA following earlier pull-forward effects caused by previously announced US tariff increases, but also deliveries to China declined compared to the previous month. The sales of German products to EU countries, on the other hand, continued to rise. At the same time, nominal imports of goods and services seasonally and calendar adjusted increased strongly by 2.9% in April compared with the previous month. In the three-month comparison, they were also up by 2.4%. In April, particularly more imports were recorded from the EU, but also from other trading partners than in March. The monthly surplus in trade in goods and services seasonally adjusted thus fell again from €13.0 billion to €8.7 billion after the previous marked expansion.

Import prices fell further in April, seasonally adjusted by -1.9% compared with the previous month, mainly thanks to lower energy and raw material prices. Export prices also declined again by -0.6%, so that the terms of trade improved further by +1.4% compared with the previous month.

Early indicators remain volatile in view of the erratic US tariff policy. The ifo export expectations brightened again in May after their previous slump (from -9.4 to -3.0 points). Export expectations in mechanical engineering as well as in the automotive and electrical industries improved significantly. In contrast, both the metalworking and chemical industries anticipate declining exports in the coming three months.

Foreign orders declined slightly in April seasonally adjusted by -0.3% compared with the previous month, after a marked increase previously. Demand from the euro area rose by +0.5%, while orders from other countries decreased by -0.9%, especially in the consumer goods sector. Foreign demand for capital goods increased further in April by +1.0% and was even up by 6.2% in the more meaningful three-month comparison.

Following the pull-forward effects in the first quarter with regard to the announced US tariff increases, German goods exports weakened somewhat as expected at the beginning of the second quarter. Against the background of the still erratic US trade policy and the recent tariff increases, uncertainties remain high for exporters and early indicators remain volatile. A further weakening of German foreign trade cannot be ruled out in the coming months – with ongoing fluctuations.

Industrial output declines slightly at the beginning of the second quarter

After a noticeable increase in the first quarter, production volume fell again in April. Output in the manufacturing sector declined by 1.4% compared with the previous month, in which a significant increase of 2.3% was seen. Both industrial production (-1.9%) and energy production (-1.6%) recorded declines. Only construction output increased significantly by 1.4%.

Within industry, the majority of sectors recorded production declines after some had risen markedly in the previous month: especially the production of pharmaceutical products experienced a sharp reversal by 17.7%, after a strong increase of +19.3% in March. Metal production and processing (-6.7%), mechanical engineering (-2.4%), production of metal products (-2.3%), as well as motor vehicles and parts (-0.6%) also declined significantly at the beginning of the second quarter. Increases were observed mainly in the production of food and animal feed (+5.7%) and in the repair and installation of machinery (+1.7%).

In the less volatile three-month comparison, output continued to rise slightly, up +0.5%. However, only industry (+1.1%) recorded noticeable gains, while construction (-0.6%) and energy output (-2.7%) declined.

Unlike industrial production, new manufacturing orders expanded again somewhat in April after a marked increase in the previous month. According to the Federal Statistical Office, orders increased by 0.6% compared with the previous month. Domestic orders expanded significantly, up 2.2%, while foreign demand decreased slightly, down -0.3%. Orders from the euro area rose by 0.5%, while orders from outside the euro area declined by 0.9%. Excluding large orders, new orders increased overall by 0.3% compared with the previous month.

The development in individual manufacturing sectors in April was very heterogeneous. Demand increased significantly in the areas of IT and optics (+21.5%), other vehicle construction (+7.1%), production of metal products (+4.4%), and motor vehicles (+2.0%). The number of new orders declined in pharmaceutical products (-14.1%), chemical products (-1.8%), electrical equipment (-9.2%), and the key mechanical engineering sector (-4.2%).

In the less volatile three-month comparison, new manufacturing orders increased overall by +0.5%. Domestic demand declined by 3.6%, while foreign orders recorded marked growth of +3.4%.

The recently highly volatile new orders for industrial production likely also reflect trade policy disruptions caused by US tariff measures. The volatility of export expectations and the still subdued sentiment indicators suggest that industrial activity will continue to be strongly influenced by tariff policy turbulence in the future. In view of the recent tariff increases on steel and aluminium and the upcoming end of the suspension period for reciprocal tariffs, trade policy uncertainty remains high despite ongoing tariff negotiations between the USA and the EU. The outlook for a recovery in industrial production has accordingly deteriorated again recently.

Retail sales weakened recently; early indicators show improvement

Real sales in retail trade (excluding motor vehicles) declined by 1.1% in April compared with the previous month, after a strong upward revision for March to +0.9% compared with the previous month. Compared with the same month of the previous year, retail trade reported a real sales increase of 2.3% in April. Food retail stagnated in April (-0.1%). Internet and mail order sales remained almost unchanged compared with the previous month but rose sharply, up 14.0% compared with the previous year.

New passenger car registrations fell by 5.6% in May compared with the previous month after a strong increase in April; in the more meaningful three-month comparison, they decreased by 2.4%. Compared with May 2024, an increase of 1.2% was recorded. Private new passenger car registrations declined by 4.6% in May compared with the previous month and fell by 4.9% in the three-month comparison. Registrations by companies and self-employed persons decreased by 6.1% in May. The hospitality sector recorded a decrease in nominal turnover of 1.3% in March compared with the previous month; real turnover also declined by 1.3%. Compared with March 2024, the hospitality sector’s real turnover fell by 3.5% and nominal turnover by 0.3%.

Sentiment in consumption-relevant sectors has recently improved slightly. The ifo business climate index in retail (including motor vehicles) rose by 7.2 points to 18.6 points in May. The assessment of the current situation also improved by 5.1 points to 11.8 points. Expectations increased most strongly by 9.1 points but remain clearly negative. According to the GfK forecast, consumer climate will rise by 0.9 points to 19.9 points in June. For May, the market research institute reports a slight increase of 3.5 points to -20.8 points. According to GfK, income and economic expectations improved positively. However, developments in purchase and saving propensity cloud the overall picture. The HDE consumption barometer rose noticeably in June.

Current early indicators mostly show a slight improvement in still depressed consumer sentiment. Despite the persistently weak labour market and ongoing uncertainties surrounding US foreign trade policy, private consumption is expected to continue providing a stabilising effect on the German economy.

Inflation rate stagnates at 2.1% in may

The inflation rate defined as the year-on-year increase in the general price level –  remained unchanged at +2.1% in May compared with the previous month. Consumer prices rose by 0.1% compared with April. Once again, a noticeable relief came from energy prices, which fell significantly both compared with the previous month (-0.4%) and the previous year (-4.6%) (April: -5.4%). The price increase for food showed no relief at +2.8% compared with the previous year. The core rate –  the change in consumer price level excluding energy and food –  was slightly lower in May at +2.8% than in April (+2.9%). This was mainly due to a somewhat easing price pressure in services (+3.4%; April: +3.9%). Prices for goods, however, increased more strongly than before (May: +0.9%; April: +0.5%).

Price pressure in upstream economic stages eased further: producer prices fell by 0.6% in April compared with the previous month and were 0.9% lower than in the previous year. Import prices declined again sharply, down -1.7% in April compared with the previous month, and were 0.4% below the previous year’s level. Wholesale selling prices decreased by 0.3% in May compared with April but were 0.4% higher than in the previous year, mainly due to higher food prices.

At spot markets, the price for natural gas (TTF Base Load) is currently around €36/MWh, roughly at the level of the previous year. Compared with the previous month, gas prices remained nearly unchanged (+0.5%). Market expectations indicate a rise in gas prices in the coming quarters. The price for crude oil (Brent) was recently around €62/barrel, about 19% below the previous year’s level but approximately 3% above the previous month’s level.

Inflation is expected to stabilise at the current level going forward. Moderate upward tendencies in energy and raw material prices are offset by less dynamic wage increases and subdued overall economic demand.

Stagnation in the labour market continues

Following a weak spring recovery, no improvement in the labour market is expected in the second quarter either. Employment increased slightly in April by 3,000 persons compared with the previous month, but fell again compared with the previous year. Employment subject to social security contributions stagnated in March, with an increase of just 1,000 persons. At the same time, unemployment rose significantly by 34,000 persons in May, exceeding usual seasonal increases, while underemployment (unemployed persons and participants in labour market policy measures) decreased by 2,000 persons. The rise in reported unemployment figures is partly due to holiday-related special effects in processing sick-leave notifications but also largely attributable to a decline in persons participating in labour market policy measures. The number of persons on short-time work remained stable in March at around 248,000, with notifications of short-time work continuing at similar levels in the current month.

Leading indicators slightly improved in May but still point to a weak labour market. According to the IAB Labour Market Barometer, further increases in unemployment are to be expected. The ifo Employment Barometer has brightened somewhat recently but does not yet indicate a turnaround in employment trends. Signs of renewed employment growth are emerging for the first time since the beginning of the year, but only in the service sector, driven in particular by optimism in the temporary employment industry. A noticeable improvement in employment prospects in other sectors by mid-year will largely depend on how the economy develops going forward. 

Corporate insolvencies remain at a high level

The number of corporate insolvencies fell by 3.6% month-on-month to 1,993 filed proceedings in March 2025, according to final figures. However, this represents an increase of 10.6% compared with March 2024. In the first quarter of 2025, the number of corporate insolvencies rose by 13.1% compared with the same period of the previous year. While the number of affected employees and the volume of expected claims declined compared with the previous month, both figures remain above last year’s levels. The persistently dynamic insolvency trend is being driven by a combination of factors, including still subdued overall economic growth, structural challenges, rising costs, and ongoing geopolitical uncertainties.

According to the IWH insolvency trend –  which is based on a narrower methodological definition and provides more timely data on corporations and partnerships –  a total of 1,478 insolvencies were recorded in May, representing a 9.1% decline from the previous month. However, this still marks an increase of 17.0% compared with May 2024 and 52.5% compared with the average for May in the years 2016 to 2019, i.e., prior to the COVID-19 pandemic. The IWH expects insolvency figures to decline slightly in June, but anticipates that insolvencies will remain above last year’s levels for the foreseeable future.

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[1] This report is based on data that was available as of 16 June 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