Germany’s economy is showing early signs of breaking out of its recent stagnation, according to a new report from Deutsche Bank. After a challenging 2024 marked by flat growth and weak industrial activity, the first quarter of 2025 brought a notable rebound — with GDP expanding by 0.4%, double the original estimate of 0.2%.
Key Drivers: Exports and Industrial Output
The rebound was primarily driven by a surge in exports, with German manufacturers ramping up production ahead of expected U.S. trade tariffs. Industrial output also showed resilience, benefiting from global restocking trends and recovering demand in China and the eurozone.
Domestic Tailwinds and Consumer Support
Domestic demand is beginning to support the recovery as well. Real wages have started to rise again, easing the pressure on household spending. Consumer sentiment, though still cautious, has improved steadily since the start of the year, particularly in the services and retail sectors.
Infrastructure Boost and Fiscal Support
One of the most significant tailwinds for Germany’s medium-term recovery is the Bundestag’s recent approval of a €500 billion infrastructure fund. The massive investment package aims to modernize transportation, digital infrastructure, and energy grids — addressing years of underinvestment and boosting economic productivity.
Risks Still Present
Despite the momentum, Deutsche Bank cautions that some of the Q1 growth may have been frontloaded. As the temporary boost from export acceleration fades, the second quarter may reflect more modest growth. Energy costs, labor shortages, and lingering geopolitical uncertainty remain potential headwinds.
Still, if current trends continue, Germany is on track to exit stagnation and resume sustainable growth through the second half of 2025.
