The German economy shrank by 0.3% quarter-on-quarter from April to June, according to figures released by the Federal Statistical Office on Friday.
That’s worse than the initial estimate of -0.1% and comes after Germany saw a GDP boost at the start of the year, notably as companies ramped up business with the US to get ahead of tariffs imposed by President Trump.
“Industrial production, in particular, performed worse than initially assumed,” said the Federal Statistical Office.
Household consumption was also revised downwards to 0.1% due to new information available on the services sectors, such as the monthly data on accommodation and food services for June.
Government final consumption expenditure increased by 0.8% on the previous quarter, while investments, the construction sector, and net exports all registered a decline.
Despite the fall into recessionary territory, PMI data released on Thursday by S&P Global — which is based on monthly surveys of purchasing managers — painted a more optimistic picture.
“Business activity rose for the third straight month across the German private sector in August, with the pace of growth ticking up to the quickest since March but remaining only modest,” noted S&P Global on Thursday.
This optimism in the face of rocky economic conditions could be linked to a bullish reading of US tariffs, or may be tied to promised fiscal stimulus from the German government.
Germany has this year approved a constitutional amendment to its ‘debt brake’ rule, meaning defence spending above 1% of GDP is not subject to borrowing limits. The government has also created a €500 billion extrabudgetary fund for additional infrastructure spending.
US tariffs are, however, already starting to constrain GDP growth as a trade deal between the EU and the US remains a work in progress.
“Recent corporate results were already a painful reminder that US tariffs, but also structural transitions, were in full swing in the second quarter, weighing on company results,” said ING economist Carsten Brzeski.
He continued: “This is a trend that won't change too much in the third quarter, with US tariffs of 15% on most European goods and uncertainty over whether (and when) the 27.5% tariffs on automotives will be brought back to 15%. With 10% of total German exports going to the US, the new tariffs will weigh on economic growth.”
Annual GDP growth came to 0.2% in the second quarter of the year, compared to a 0.3% reading in the first quarter.
