Germany: Economy flatlines in Q3 2025
GDP stagnates in Q3: A second release confirmed that Germany’s GDP flatlined on a calendar- and seasonally adjusted quarter-on-quarter basis in Q3, following a 0.2% contraction in the previous quarter. Q3 was the eighth straight quarter in which Germany’s economic growth trailed the euro area’s pace.
On a year-on-year basis, the economy grew 0.3% in Q3, following a 0.1% contraction in the previous quarter.
Fixed investment rebounds, but exports contract: Relative to the prior period’s data, Q3 saw improvements for government consumption (+0.8% in seasonally adjusted quarter-on-quarter terms vs +0.2% in Q2) and fixed investment (+0.3% vs -1.1% in Q2). In contrast, readings softened for private consumption (-0.3% vs +0.1% in Q2), exports of goods and services (-0.7% vs +0.3% in Q2) and imports of goods and services (0.0% vs +1.7% in Q2).
The improvement in fixed investment was likely driven by the ECB’s cumulative 235 basis points of interest rate cuts since June 2024. In contrast, private consumption deteriorated, partly due to elevated uncertainty, and exports contracted amid significant front-loading earlier in the year.
GDP growth to remain timid in Q4 2025: For the final quarter of 2025, our panelists have penciled in a mild uptick driven by a rebound in private spending and faster growth in fixed investment.
Looking further ahead, Germany’s economy is expected to expand at the fastest pace in four years in 2026, mainly driven by fiscal stimulus. As such, economic growth will be closely tied to the government’s ability to implement the fiscal package, with sectoral bottlenecks and slow implementation key downside risks.
Panelist insight: Commenting on the outlook, Dr. Jörg Krämer, economist at Commerzbank, stated:
“The leitmotif of a stimulating fiscal and monetary policy is a perfect fit for Germany. It is also likely to succeed in this country in the sense that growth in 2026 should be significantly higher […] than in 2025 […]. This is primarily due to the German government’s fiscal package, which includes a special infrastructure fund of €500 billion and exempts defense spending of more than 1% of GDP from the debt brake. […] If we combine the higher spending on defense and infrastructure with the additional expenditure caused by legislative changes, this results in a considerable fiscal stimulus of around 0.8% of GDP for the coming year, whereas fiscal policy actually slowed the economy slightly in 2025.”