The German economy grew more than estimated in the first quarter, primarily due to an early recovery in exports and industrial production. Although this may have been solely due to the surge ahead of tariffs announced by the U.S., the downward trend in revisions may finally be over.
GDP rose by 0.4 percent on a quarterly basis, writes Portfolio.hu, compared to a 0.2 percent decline in the fourth quarter of last year and the initial estimate of 0.2 percent. In annual terms, the economy still contracted by 0.2 percent; however, this is still the best quarterly performance since Q3 of 2022.
This is largely due to U.S. President Trump’s announced tariffs, driving a surge in German industrial production and exports in March. Economic activity in the first quarter was driven by net exports and household consumption, while government spending and inventories were a drag.
Looking ahead, the positive performance in the first quarter could soon turn out to be a one-off positive swing, writes the business portal. “The German economy is at the intersection of two major changes: on the one hand, a new government that appears to have little commitment to structural reforms but has unprecedented budgetary room for infrastructure and defense investments; and on the other hand, fundamental changes are taking place in trade and geopolitics – including U.S. tariffs,” it read.
ING analysts believe that in the short term, the negative factors outweigh the positive ones. This is despite the turnaround in the inventory cycle, which is a positive leading indicator for industrial production.
Also, American tariffs, even with the current 90-day break, are still higher than at the start of the year and alone lead to lower confidence and higher uncertainty — both negatives.
Longer term, there may be reason for optimism. Investments in infrastructure can lead to a cyclical recovery, but these will not stimulate innovation, sector transformation, or new growth opportunities on their own, writes Portfolio.
Questions remain as to whether the new government will do what is necessary to move beyond a mere cyclical rebound in the economy.
GLOBAL EXCLUSIVE: The British Empire Launched A Secret Plan To Develop AI 170 Years Ago