Headlines
German GDP contracts in Q2 as pre-tariff boost ends
Published by Global Banking & Finance Review®
Posted on July 30, 2025
2 min readLast updated: January 22, 2026
Global Banking & Finance Review®
Company
Published by Global Banking & Finance Review®
Posted on July 30, 2025
2 min readLast updated: January 22, 2026
Germany's GDP contracted by 0.1% in Q2 due to US tariff effects. Investment fell, but consumption and government spending increased.
By Maria Martinez
BERLIN (Reuters) -Germany's economy contracted by 0.1% in the second quarter, data showed on Wednesday, as demand from the United States slowed following months of strong purchases in anticipation of U.S. tariffs.
The contraction was in line with forecasts, reversing the growth recorded in the first quarter, when importers in the U.S. bought more goods earlier than usual because they expected tariffs to go up.
This contraction left GDP still stuck at its pre-pandemic size, said Franziska Palmas, senior Europe economist at Capital Economics, who added that it was "partly, but not solely," due to the reversal of tariff front-running.
Investment in Germany fell in the second quarter, while consumption and government spending rose, compared to the previous quarter, the statistics office said.
The office also revised first-quarter growth downward to 0.3% from the previous 0.4%.
The U.S. struck a framework trade agreement with the European Union on Sunday, imposing a 15% import tariff on most EU goods, half of what was originally threatened. The agreement helped avoid a bigger trade war between the two allies, who together make up almost a third of global trade.
The U.S. was Germany's biggest trading partner in 2024 with two-way goods trade totalling 253 billion euros ($278 billion).
"Germany is likely to be hit harder than other major economies by tariffs and continue to struggle this year before fiscal stimulus starts to boost the economy in 2026," Palmas said.
Despite optimism in recent surveys, Wednesday's GDP data is "a painful reminder that optimism alone does not automatically bring back strong growth", said Carsten Brzeski, global head of macro at ING.
"The economy's flirtation with yet another year of stagnation continues."
(Reporting by Miranda Murray and Rachel More; Editing by Kirsti Knolle and Kevin Liffey)
Tariffs are taxes imposed on imported goods and services, making them more expensive and potentially reducing their demand in the domestic market.
Economic contraction occurs when a country's GDP decreases for two consecutive quarters, indicating a slowdown in economic activity.
Investment in economics refers to the purchase of goods that will be used to produce other goods and services, contributing to economic growth.
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