The Economic Situation in Germany in April 2025

The German economy finds itself in turbulent waters: the tariff hikes announced and then suspended by the U.S. have increased global levels of uncertainty, caused turbulences on the financial markets and dampened the global outlook for trade and growth. Consumer-related services saw a slight recovery at the beginning of the year, but the situation in the goods-producing sector and in business-related services remains tense. The impact of U.S. trade policy is not yet captured by the latest economic indicators, and the risk of a marked slowdown of global growth, which would also affect Germany, has considerably increased. Following a positive start to the year 2025, production in the goods-producing sector fell 1.3% in February (adjusted for price, seasonal and calendar variations) compared to the preceding month. Industrial output shrank only slightly (-0.5%), whereas the declines in the construction and energy sectors were more pronounced (-3.2% and -3.3%). While the sentiment indicators for the industrial sector have improved, this development is very unlikely to continue in the face of U.S. tariff policy. Price-adjusted retail turnover (excluding motor vehicles) rose slightly by 0.3% in February (month-on-month). Year-on-year, the retail sector reported real sales growth of 4.4%. Total new car registrations declined in March by 2.2% (month-on-month) and 3.9% (year-on-year). Consumer sentiment is also likely to be adversely affected by recent geopolitical developments. In March, the inflation rate (+2.2%) continued to approach the mark of 2%. Food prices continued to rise, whereas energy prices fell more quickly than before. The core inflation rate declined slightly, probably as a result of lower price pressure in the field of services, which, however, continued to be above the average. Over the course of the year, it is likely that factors dampening inflation will continue to dominate. Given the persisting weakness in short-term economic performance, the spring recovery on the job market is exceptionally low this year. Adjusted for season, unemployment has risen by another 26,000 persons and gainful activity fell by 10,000 in February, which is also more than is typical. While actually realised short-time work was again higher than in the previous year (+240,000), notifications of short-time work have stabilised at a slightly lower level than before. As the leading indicators give rise to expectations of a further rise in unemployment and a continued fall in employment, the labour market is expected to develop slowly for the time being. According to official data, the number of corporate insolvencies saw a slow rise between December 2024 and January 2025 (+2.2%). For March, the Halle Institute for Economic Research reports 1,459 cases of insolvencies of partnerships and corporations, which is a slight increase of 1.6%. According to data from the Halle Institute for Economic Research, a total of 4,237 insolvencies were registered in Q1 of 2025, corresponding to an increase of 18.4% over Q1 of 2024.

U.S. tariff announcements put a damper on growth expectations

In spring 2025, the German economy is finding itself in difficult waters. It is true that the fundamental fiscal policy decisions for the future coalition government and the amendments of the Basic Law associated with these initially caused a palpable brightening of business and consumer sentiment, but the announcement by the U.S. Administration concerning comprehensive tariff increases, some of which were later taken back, have caused turbulence on the international financial markets and resulted in considerable adjustments of growth expectations worldwide – in particular where the U.S. economy is concerned.

It has to be seen to what extent and over what time period the protectionist measures that have already taken effect and those that have been announced will be applied and what counter-reactions they will provoke. But it is clear that the sudden and drastic announcements have tangibly increased uncertainty for companies and households – and that this is having a negative impact on the short-term economic outlook.

This development is hitting the German economy at the worst possible moment: the phase of economic stagnation that has characterised the past few years is not over yet. Whilst leading indicators such as the ifo business climate index, the ZEW Indicator of Economic Sentiment and consumer confidence have all recently sent positive signals, the unpredictable nature of U.S. trade policy is expected to cause major setbacks in business expectations.

The German industrial sector, which remains in a phase of weakness, is strongly export-driven and deeply embedded in global supply chains, which is why it is hit particularly hard by the tensions in trade policy. While domestic new orders stabilised in February (adjusted for large orders), foreign orders continued to drop. Output in the manufacturing sector also fell slightly once again in February. Overall, the goods-producing sector can therefore not be expected to have made a noticeable contribution to growth in Q1.

The picture is slightly more positive in consumer-related services industries with a domestic focus, such as retail or hospitality, which saw growth at the beginning of the year (adjusted for season). By contrast, business-related services had a weak start to the year – with the exceptions of the real estate and housing sectors and of transport.

The impact of recent U.S. tariff decisions, which is not yet reflected in the present short-term economic and sentiment indicators, increases the risk of a significant weakening of global trade and economic performance – a development that would not spare the strongly integrated German economy.

U.S. trade policy weighs heavily on the global economic outlook

The far-reaching hikes in U.S. tariff rates announced at the beginning of April have sparked turbulences internationally. Initially, the financial markets fell, sometimes drastically, and the first leading indicators available for April have also worsened significantly. The Sentix index, for instance, an indicator measuring sentiment among investors on the financial markets, slumped in April across all economic regions. For the global economy overall, Sentix fell by 16.6 points to -12.0 points in April. The U.S. index slumped down even further (-24.7 points) – mainly as a result of the fall in short-term economic expectations among financial investors from -17.8 to -42.0 points – to reach its lowest level since the 2008 global financial crisis. In response to the announcement of a 90 day tariff break for many countries (excluding China) shortly after the entry into force of the far-reaching “reciprocal tariffs” on 9 April, the markets in many countries saw a partial recovery.

According to the indicators available for Q1 2025, however, it seems that there was a robust development of the global economy in that quarter – partly resulting from the fact that U.S. companies brought forward their orders to build stocks in anticipation of the additional trade barriers announced. In January, global industrial production stagnated month-on-month (adjusted for season) and rose 2.7% year-on-year. In Q1, the leading indicators for global development also pointed to moderate expansion: the S&P Global sentiment indicator for the global economy rose from 51.5 points to 52.1 points in March, pushed by a brightening of sentiment among service providers. Following improvements in the two preceding months, sentiment in the industrial sector dimmed somewhat, but remained just above the growth threshold at 50.3 points.

Global trade also picked up at the beginning of the year. Following an expansion by 0.8% month-on-month (adjusted for season), it grew by another substantial 1.1% in January, putting it 5.0% higher year-on-year. Broken down for individual countries, the figures for the goods trade show that this boost was largely due to a significant increase in U.S. goods imports, suggesting that purchases were brought forward to avoid the tariff increases that had been announced. The RWI/ISL Container Throughput Index also continued its upward trend in February, going up 1.1 points to 135.1 points. Activities in Chinese ports increased by a significant margin, whereas container throughput in the European ports declined after the marked increase in the preceding month.

Overall, the outlook for economic growth is shaped by considerable risks and uncertainties. In their spring report, the authors of the Joint Economic Forecast are expecting global GDP to grow by no more than 2.4% this year and in 2026, following 2.7% in 2024.

Exports temporarily propped up as transactions are brought forward

The German export business has recently recovered slightly. Nominal exports of goods and services expanded quite clearly between January and February (+1.5% after adjustment for seasonal and calendar variations), even after an expansion in January of 1.5% according to revised data. In the less volatile three-month comparison, they were up 1.8%. There are signs that this is partly owed to activities brought forward in anticipation of the U.S. tariff increases: sales to the U.S. grew by the large margin of 8.5% month-on-month, but exports to China (+0.6%) and the EU (+0.5%) also increased. Nominal imports of goods and services were also slightly up in February compared to January (+0.2% after adjustment for seasonal and calendar variations). The three-month comparison shows near stagnation (+0.1%). The stronger rise of exports compared to imports caused the monthly external surplus to expand from €10.0 billion to €12.1 billion.

Following a considerable increase in January, import prices rose by no more than 0.1% in February month-on-month (adjusted for season) - mostly due to higher prices for intermediate goods. Export prices inched up a little more than that (+0.2%). This resulted in a slight improvement of the terms of trade by 0.1% month-on-month. It is therefore likely that the price-adjusted increase in exports and imports was slightly lower.

Whilst the signals sent by the leading indicators are moderately positive at present, they are expected to dim down markedly in the face of the recently announced U.S. tariff increases and the massive rise in uncertainty resulting from trade policy. Foreign orders grew by a small margin in February (+0.8% month-on month, after seasonal adjustment). While foreign demand for capital goods expanded by 3.3%, driven mostly by a 6.9% rise in order volumes from countries outside the eurozone, orders of intermediate and consumer goods declined. Overall, foreign orders fell 5.8% in the three-month comparison. Despite the fact that the goods-producing sector continues to expect foreign sales to shrink on balance, the ifo export expectations indicator brightened up again in March (from -4.7 to -1.6 points). Surprisingly, some important sectors such as the automotive and mechanical engineering sectors and the chemical industry were expecting rising exports back in March, i.e. prior to the announcement of additional U.S. tariffs of 2 April and the ensuing 90-day-long moratorium for many countries.

It seems that, at the beginning of the year, exports seem to still have benefited from orders brought forward and stockpiling by U.S. companies. The erratic U.S. tariff policy has brought insecurities regarding the development of the German export business to an exceptionally high level at present. Despite the recent suspension of a number of U.S. tariff hikes until the beginning of July, U.S. tariffs and those of other countries are now at a significantly elevated level, meaning that, overall, sentiment in the export industry is likely to dim down again in Q2. A recovery of the German export industry cannot currently be expected, given a geopolitical environment shaped by increasing levels of protectionism and insecurity.

Output falls again, following a positive start to 2025

Output from the manufacturing sector fell 1.3% between January and February (adjusted for price, seasonal an calendar variations). This comes after a solid increase in January (+2.0%). Industrial output fell by a slight 0.5%, with construction and energy posting much stronger declines than is typical for the season (-3.2% and -3.3%).

Within the industrial sector, developments differed between individual industries: a marked decline was seen in foodstuffs and animal feed (-5.3%), pharmaceuticals (-4.0%), chemical products (-1.0%) and machinery repairs and maintenance (-1.9%). The branch of “other vehicle manufacturing”, which had recently benefited from large orders, also saw a slight decline (-1.3%). By contrast, output from the vehicles and vehicle parts industry stagnated (-0.1%). There was a clear increase in the production of electrical equipment (+3.3%), computer appliances, electrical and optical products (+2.6%). Output also rose in metal production and processing (+2.4%), the production of metal products (+1.7%) and in the important mechanical engineering sector (+0.6%).

In the less volatile and thus more meaningful three-month comparison, output in the goods-producing sector was almost flat in February (+0.1%). Within the sector, industrial production continued to drop (-0.8%), whereas construction (+1.6%) and energy production (+3.7%) saw solid expansion.

New orders in the goods-producing sector have recently stabilised, following a sharp decline at the beginning of the year. They remained unchanged in February (month-on-month, adjusted for price, calendar and seasonal variations), having contracted 5.5% in January. Domestic orders and orders from the eurozone decreased by 1.2% and 3.0% in February. Demand from outside the eurozone, however, increased by 3.4%. Adjusted for large orders, the total order volume fell by a slight 0.2% compared to the preceding month.

The three-month comparison shows a drop of 1.6% in new manufacturing orders. While new domestic orders increased by 5.3%, order volumes from the eurozone and from outside the eurozone shrank by 2.7% and 7.8% respectively.

The indicators suggest that industrial production will stagnate. Given the continuing downward trend in new orders combined with the erratic nature of U.S. trade policy, it is likely that the short-term development in the industrial sector will again weaken palpably in the coming months.

Retail sales up slightly, leading indicators brighten

Price-adjusted retail turnover (excluding motor vehicles) rose slightly by 0.3% in February (month-on-month). Year-on-year, the retail sector reported real sales growth of 4.4%. Trade in foodstuffs expanded slightly in February (+0.7%). Online and mail-order trade increased by 0.9% month-on-month and a strong 14.5% year-on-year.

Total new car registrations declined once again month-on-month (-2.2%) and year-on-year ( 3.9%) in March. In the more meaningful three-month comparison, new registrations declined by a significant 8.6% compared to the previous period. New car registrations by private individuals fell by 2.4% between February and March. In the three-month comparison, the figures were down a significant 7.4%. New car registrations by companies and self-employed individuals fell by 2.1% in March. Again, the three-month comparison shows a much stronger decline (-9.1%). The hospitality sector recorded a nominal increase in turnover of 2.5% in January compared to December; adjusted for price, the figure stands at 2.7%. Compared to January 2024, turnover in the hospitality sector declined by 0.3% in real terms and rose by 3.9% in nominal figures.

The ifo Business Climate index for the retail trade (incl. vehicles) rose by 1.2 points to 22.6 points in March. The assessment of the current situation brightened slightly by 0.1 points to 13.4 points. Expectations rose by 2.2 points to -31.2 points.

According to the GfK forecast, consumer sentiment will inch down by 0.1 points in April, to 24.5 points. For March, the GfK market researchers registered a decline of 2.0 points to 24.6 points. According to the institute, the latest figures were positively influenced by rising income expectations and a higher propensity to purchase. A growing tendency to save money, however, dimmed down the overall picture. The HDE Consumer Barometer remained almost unchanged in March.

The recent slight improvement in consumer sentiment is unlikely to continue in the light of the U.S. tariff announcements and the turbulences these have caused on the financial markets.

Inflation rate falls slightly, to 2.2%

The inflation rate (year-on-year increase in price levels) slipped down slightly in March, now standing it +2.2%. Month-on-month, the figure increased by 0.3%. The increase in food prices accelerated in March. In this segment, prices were up 3.0% year-on-year – an increase above the average. By contrast, energy prices saw a marked decline of 2.8% in between March 2024 and March 2025, which has allowed energy to have a bigger dampening effect on the overall inflation rate. The core inflation rate (without energy and food) continued its slight fall, reaching +2.6%. This was due not least to again less price pressure in the field of services, of +3.5%, although this figure remained clearly higher than the average.

The prices in the upstream stages of the economy are developing increasingly dynamically, but are still not feeding through into a higher inflation rate. Producer prices in February rose by 0.7% year-on-year and fell by 0.2% month-on-month. Import prices rose by 0.3% between January and February, leaving them 3.6% up in year-on-year terms. Wholesale prices in February rose by 0.6% (month-on-month) and 1.6% (year-on-year).

Gas spot market prices rose appreciably over the year: latest figures show the TTF Base Load at around €34/MWh, almost 24% higher than the previous year’s level. However, the monthly comparison shows a slump of 21%. Market expectations point to gas prices remaining at around €40/MWh in the coming quarters. The price for Brent crude oil recently stood at approx. €59/bl, almost 7% below the previous month’s level, and 29% down on the year before.

Later in the year, inflation-reducing factors – such as the still moderate price development in the upstream economy, the aftereffects of the restrictive monetary policy, and lower collective wage agreements – are likely to gain the upper hand.

Still no signs of a turnaround on the labour market

Given the persisting weakness in short-term economic performance, the spring recovery on the job market is exceptionally low this year. Unemployment (adjusted for season) was again up by 26,000 persons, but continues to remain below the threshold of 3 million. Underemployment increased slightly (+13,000 persons) in seasonally-adjusted terms. Parallel to this, gainful employment fell more than it is typical of the season (-10,000 persons). Employment subject to social security contributions declined by 12,000 persons (seasonally adjusted) in January, showing a decline even in the less volatile three-month comparison. While actually realised short-time work was again higher than in the previous year (+240,000), notifications of short-time work seem to be stabilising at a slightly lower level than before.

The leading indicators suggest that the labour market will continue to be slow. Both the figure of overall job vacancies for Q4 2024 calculated by the Institute for Employment Research (IAB) and number of vacancies registered with the Federal Employment Agency in March point to a trend of falling demand for labour. The IAB job market barometer has fallen to 98.2 points, indicating that a further rise in unemployment and a continued downward employment trend are to be expected. The ifo employment barometer has also weakened further, signalling a continued worsening of employment prospects across all four sectors. Combined with the insecurities caused by unpredictable U.S. trade policies, there is currently no sign of an impending turnaround on the job market.

Company insolvencies slightly up

In January 2025, the number of corporate insolvencies (1,830) was slightly higher than the level of the preceding month of December (1,791), but was 12.8% up year-on-year. The number of employees affected, however, dropped 2.7% month-on-month and the expected claims by 8.4%, suggesting that smaller companies tend to be more frequently effected compared to the preceding month. Various factors lie behind the increase in company insolvencies, such as the restrained macroeconomic development, structural challenges, increased costs and repercussions from the previous crises (e.g. pent-up effects from the time of the special arrangements during the COVID years).

Compared with the official statistics, the IWH Bankruptcy Update for individuals and corporations applies a more rigorous methodology and is more up to date; for March, it registers 1,459 insolvencies, a rise of 1.6% (month-on-month) and +12.0% (year-on-year). In Q1 2025, there were 4,237 insolvencies in total, which is 18.4% more than in Q1 2024.

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^[1] This report is based on data that was available as of 11 April 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.