Germany: Economy rebounds in Q4 2025
GDP growth ends the year more strongly: According to a preliminary reading, Germany’s GDP expanded 0.3% in seasonally and calendar-adjusted quarter-on-quarter terms in Q4, after stagnating in Q3. The result came in slightly above economists’ projections.
In annual terms, the economy expanded 0.6% in Q4, following a 0.3% rise in the prior quarter. As a result, in 2025 as a whole, GDP grew 0.2%, up from 2024’s 0.5% contraction and marking the first year of growth after a two-year recession.
Domestic spending underpins economic growth: A complete breakdown will only be available on 25 February, however the statistical office said that household and government consumption increased quarter on quarter. Moreover, past interest rate cuts likely supported fixed investment in the final quarter of 2025, and stronger construction output likely added further tailwinds. On the external front, exports might have still suffered during Q4 due to higher global trade frictions, with the merchandise trade balance deteriorating in Q4 compared to Q3.
GDP growth to pick up later in 2026: Our panel sees German economic growth stabilizing around Q4’s rate in Q1 and Q2 2026 on low inflation and interest rates, before accelerating slightly in the second half of the year as fiscal stimulus and defense spending kicks in. Still, GDP growth will remain weak, with Trump’s tariffs dragging on the already struggling external sector.
Downside risks to GDP growth stem from a further deterioration in the global trade backdrop, plus potential inefficiency and bottlenecks in the government’s spending plan; the German Council of Economic Experts estimates that a maximally efficient allocation of investment—directed in the sectors with the highest impact on GDP—could boost GDP by about 1.0% in 2026 compared with the government’s likely spending path.
Panelist insight: Commenting on the outlook, Dr. Jörg Krämer, chief economist at Commerzbank, stated:
“The ECB’s interest rate cuts between summer 2024 and summer 2025, as well as the very expansionary fiscal policy, suggest that this economic recovery will continue this year. However, the continuing rather weak leading indicators argue against a noticeable upturn in growth in the near future. This is likely to be exacerbated by the fact that German companies are facing strong headwinds in important foreign markets.”
Holger Schmieding, chief economist at Berenberg, added:
“After loosening its constitutional debt brake, Germany will likely sustain fiscal deficits of over 3% of GDP for the foreseeable future. […] As the stimulus gathers pace over the course of 2026 and private consumption and investment react, growth could accelerate. […] On the downside, overly timid supply-side reforms, rising non-wage labour costs and aggressive US tariffs could weigh heavily on confidence, investment and exports.”