FX.co ★ Germany goes through economic downturn

Germany’s economy is again going through a challenge. According to the latest official statistics, the economic downturn in Germany deepened in the second quarter of 2025. The national output declined more than previously expected.

The eurozone’s largest economy contracted by 0.3% quarter-on-quarter, worse than an earlier estimate of a 0.1% downtick. The contraction follows 0.3% growth in the first quarter of 2025. On an annual basis, Germany’s GDP rose by just 0.2% after seasonal and calendar adjustments.

Sluggish investment, a decline in construction, and a drop in net exports hurt economic activity. However, private and public consumption delivered a strong performance.

Germany’s Federal Statistical Office also revised GDP figures for 2023 and 2024 downward. As a result, the country's economic output remains slightly below 2019 levels, indicating a prolonged period of stagnation.

Analysts at ING Bank reckon that the German economy has fallen back into recession. “Against this backdrop, a meaningful recovery before 2026 is unlikely,” the experts suppose. In the near term, Germany's economic outlook will depend on trade dynamics, forex rates, and fiscal policy.

Currently, 10% of German exports are shipped to the United States. However, US tariffs of 15% on most European goods are expected to restrain economic growth.

Further recovery is also being hampered by the euro’s appreciation against the US dollar and other currencies, ING notes. Furthermore, ongoing political debates over potential austerity measures may undermine the effectiveness of fiscal stimulus aimed at infrastructure and defense.

“Prolonged debates over fiscal policy will prompt households and businesses to delay spending and investment decisions,” the analysts conclude.