Germany’s Economy Gains Momentum in Q4

Germany’s economy expanded by 0.3% in the fourth quarter of 2025, confirming preliminary estimates and marking a clear rebound from the stagnation recorded in the previous quarter. The figure represents the fastest quarterly growth since the first quarter of 2025, supported by easing inflation and lower borrowing costs, which boosted domestic demand. Household consumption rose by 0.5%, compared with no growth in Q3, while government spending increased by 1.1%, up from 0.6% previously. Construction investment also rebounded sharply, climbing 1.6% after contracting 0.7% in the prior quarter. However, inventory changes shaved 0.3 percentage points off GDP, and net external demand reduced growth by 0.1 percentage points, weighed down in part by US tariffs. On an annual basis, the economy grew 0.4% in Q4, accelerating from 0.3% in Q3. For the full year 2025, GDP edged up 0.2%, marking a modest recovery after a 0.5% contraction in 2024.

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.