German economy extends recovery as exports fuel growth

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German economy grows

Highlights

German GDP grew 0.3% in the second quarter.
Exports increased 2%, outperforming imports.
Fixed investment declined 0.2%.
GDP was 1% higher than a year earlier.

Gross domestic product increased 0.3% from the previous quarter, compared with an initial estimate of 0.2%, according to figures reported by Bloomberg and confirmed by Germany’s Federal Statistical Office. First-quarter growth was revised to 0.4%, leaving the economy with three consecutive quarters of expansion for the first time since the pandemic.

Exports lead the recovery

Foreign trade was the clearest source of strength. German exports of goods and services increased 2% from the first quarter, while imports rose 1.5%. Goods exports alone climbed 2.6%, and net trade contributed 0.2 percentage points to quarterly GDP growth.

Manufacturing also showed signs of improvement. Value added in the sector rose 0.9% quarter over quarter, helped by chemicals and electrical equipment. Compared with the same period last year, manufacturing output increased 1.1%, its first annual gain since the first quarter of 2023.

Domestic demand was less convincing. Private consumption and government spending each increased only 0.1%. Fixed investment fell 0.2%, dragged down by a 1.4% decline in spending on machinery, equipment, and vehicles. Construction investment edged up 0.1%.

The figures underline a familiar vulnerability for Europe’s largest economy. The recovery is still leaning heavily on external demand rather than a broad revival in household spending and corporate investment.

Recovery gains ground but risks remain

The stronger figures provide evidence that Germany is moving beyond the stagnation that characterized much of the past few years. The government is supporting activity through higher infrastructure and defense spending, while Chancellor Friedrich Merz’s coalition is pursuing changes to taxes, pensions, and regulation aimed at improving investment conditions.

Still, the recovery is far from secure. Higher energy costs and geopolitical tensions remain headwinds, while exceptionally low Rhine water levels threaten industrial transport and could weaken momentum in the third quarter.

The labor market also offers a note of caution. Germany had about 45.7 million employed people in the second quarter, 212,000 fewer than a year earlier. Productivity per hour worked, however, increased 1.5%.

Germany also continues to lag the wider European economy. EU GDP expanded 0.5% quarter over quarter, compared with Germany’s 0.3%, while Spain grew 0.7%.

The latest data therefore mark meaningful progress rather than a return to rapid growth. Stronger exports and manufacturing are rebuilding momentum, but investment and consumption will need to strengthen if the recovery is to become self-sustaining.

We have previously highlighted that German manufacturing output rises on stronger auto production.

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