German Q1 GDP growth higher than initially thought

The German economy expanded by 0.4% quarter-on-quarter in Q1 2025, revised upward from an initial estimate of a 0.2% rise, and rebounding from a 0.2% contraction in the previous period.

German Q1 GDP growth higher than initially thought

This marks the sharpest economic expansion since Q3 2022 and signals a potential turning point for Europe’s largest economy after a period of sluggish growth and recessionary pressures. The upward revision reflects stronger domestic demand and improved trade dynamics, with household consumption rising by 0.5%—more than doubling the 0.2% increase seen in Q4—as real wages recovered and consumer sentiment showed signs of improvement. Fixed investments posted a slight contraction of 0.3%, reversing from a 0.4% gain in the previous quarter, suggesting that while households are spending more, business investment remains cautious amid lingering global uncertainties, especially related to trade policy and borrowing costs. However, net trade offered a notable boost to GDP, with exports jumping 3.2%—a stark rebound from the 3.1% decline in Q4—driven by stronger-than-expected growth in manufacturing output, particularly in machinery, vehicles, and chemical products. Imports also rose, but at a more moderate pace of 1.1%, compared to a decline of 0.7% previously, resulting in a net positive contribution from trade.

Manufacturing activity grows

On the production side, broad-based sectoral growth further supported the overall expansion. Manufacturing activity grew by 1% after shrinking by 0.3% in the prior quarter, benefiting from easing supply chain pressures and recovering demand from key export markets. The information and communications sector expanded by 1.7%, reflecting ongoing digital transformation and investment in technology services. Meanwhile, the trade, transport, accommodation, and food services sectors grew by 1.1%, aided by rising tourism and a mild winter that boosted travel-related activity. On an annual basis, the economy remained flat, marking an improvement from the 0.2% contraction recorded in Q4 2024 and better than initial estimates, which also forecast a 0.2% year-on-year decline. While growth remains fragile, the latest figures suggest that the German economy may be slowly gaining traction. Looking ahead, further recovery will likely depend on the resilience of consumer spending, the trajectory of global demand, and the European Central Bank’s monetary policy stance, particularly if inflationary pressures begin to ease.