German Economy Contracts in Q2 as Investment Declines

The German economy expanded 0.3% on quarter in the last three months of 2025, the strongest performance in three quarters, compared to a flat reading in the previous period and above forecasts of 0.2%, preliminary estimates showed. In particular, household and government expenditure increased. Year-on-year, the GDP grew 0.4%, the most in three years, after a 0.3% rise in each of the previous three quarters and above forecasts of 0.3%. The German economy thus ended 2025 in positive territory after a turbulent year, particularly for foreign trade. The economy rose 0.2%, the first expansion in three years. For 2026, the German government forecasts economic growth of 1%, as exports are expected to rise for the first time in three years, increasing by 0.8%. Fiscal stimulus is projected to contribute around two-thirds of a percentage point to GDP growth. Growth in 2027 is seen at 1.3%.

Germany’s economy recorded no growth qoq in Q3 2025, in line with the preliminary estimate and following a 0.2% contraction in Q2. Modest improvements in gross fixed capital formation (0.3% vs -1.1% in Q2), mainly driven by equipment and other facilities, alongside stronger government spending (0.8% vs 0.2%) and a positive contribution from inventories, helped offset weaknesses elsewhere. Private consumption fell (-0.3% vs 0.1%), while net trade subtracted 0.3 ppts as exports shrank (-0.7% vs 0.3%) amid U.S. tariffs and imports stalled (vs -0.2%). By sector, declines in manufacturing and construction were balanced by gains in trade, transport, hospitality, information and communication, and financial and insurance services. On an annual basis, GDP grew 0.3%, unchanged from the previous two quarters. Looking ahead, GDP growth is projected at 1.3% for 2026 and 1.4% for 2027, supported by higher public spending, likely helped by special infrastructure funds and increased defense outlays.

The German economy stagnated in Q3 2025, following an upwardly revised 0.2% contraction in Q2, according to preliminary estimates. The figure was in line with market forecasts. Growth in gross fixed capital formation in machinery and equipment provided some support, but this was offset by a decline in exports. On an annual basis, GDP expanded 0.3%, unchanged from the upwardly revised 0.3% growth recorded in the second quarter and also matching expectations. At the start of October 2025, the German government revised its GDP growth forecast upwards, now expecting the economy to expand by 0.2% in 2025, compared with a previous projection of zero growth made in April. For 2026, GDP is expected to rise by 1.3%, followed by 1.4% growth in 2027. Officials noted that a substantial part of the expansion in the coming years will be driven by higher public spending, particularly through special funds for infrastructure investment and increased defense expenditure.