Germany's economy shows slight growth amid trade tensions

Germany, Europe's largest economy, showed a slight growth of 0.2% in the first quarter of 2025, according to preliminary data released by the German federal statistics office on April 30, 2025. This growth was expected as per a Reuters poll and follows a contraction of 0.2% in the previous quarter. The quarterly increase has been attributed to higher household final consumption expenditure and capital formation. Despite the seemingly positive news, economists warn that such growth is insufficient to overcome the longstanding stagnation affecting the German economy. Analysts, including Carsten Brzeski from ING, expressed concern that while the current GDP report suggests a potential for improvement, the overall economic situation remains fragile due to external pressures. Factors such as ongoing U.S. tariff tensions are stifling Germany’s growth prospects, notably since the U.S. is its most significant trading partner. Presently, German goods exported to the U.S. are facing 20% blanket tariffs, although these have been temporarily adjusted to 10% for negotiation purposes. Additionally, tariffs on steel, aluminum, and automobiles have added to the uncertainty surrounding business and investment decisions within the country. In light of these challenges, the German government has revised its economic forecast, predicting stagnation by 2025. Outgoing economy minister Robert Habeck linked this revision primarily to U.S. trade policies. To counterbalance these effects, Germany recently adjusted its debt brake fiscal rule, allowing for increased defense spending and the establishment of a substantial €500 billion ($570 billion) fund focused on infrastructure and climate investments. These measures are seen as vital for boosting long-term growth, though immediate recovery remains uncertain as external trade and geopolitical issues continue to overshadow the economic landscape.