“Economic output in Germany is likely to have increased slightly in the first quarter of 2025, but could suffer a setback in the second quarter,” the Bundesbank writes in its latest Monthly Report. Averaged across January and February 2025, industrial output rose slightly on the quarter. This was, however, driven by fairly heterogeneous developments in individual sectors. For example, production of consumer goods and intermediate goods increased slightly, while production of capital goods fell short of its average from the previous quarter. The Bundesbank’s economists explain that low capacity utilisation in industry is continuing to have a negative impact on firms’ propensity to invest. Retail sales grew further in January and February, pointing to marginally higher private consumption.

Overall, domestic and foreign demand for German industrial products remained sluggish at the beginning of the year, after showing slight signs of recovery last year. By contrast, when averaged over the first two months of the year, price-adjusted goods exports rose markedly on the quarter. According to the Bundesbank’s economists, the US administration’s announcement of new tariffs may have played a role here. In February, exports to the United States, in particular, expanded significantly again. However, provided that no such anticipatory effects occur again in the second quarter of 2025, exports are likely to decline. The Monthly Report states that, in view of the US administration’s tariff policy, the outlook for Germany’s export business and industry remains gloomy overall. 

New orders up in construction business

On an average of the first two months of 2025, construction output was significantly higher than in the fourth quarter of 2024. This increase was driven exclusively by the finishing trades. These include services that tradespeople perform after structural work has been completed, such as painting or electrical installation. According to the Bundesbank’s experts, the improved order situation in construction suggests that the lowest point has now passed. New orders in civil engineering consistently trended upwards last year, and the initial positive tendencies in building construction also continued in January. However, it is will probably take some time still before output sees a truly sustainable recovery. 

Sizeable differences in the labour market

Employment fell marginally in February, as it had done in January. This was driven primarily by a decline in the number of self-employed persons, while the number of employees remained essentially constant overall. As seen before, there were sizeable differences across the various sectors of the economy. For instance, some services sectors – especially long-term care, healthcare and energy suppliers – continued to hire. In industry, by contrast, there were job losses in January. According to the Monthly Report, overall employment is expected to remain broadly stable. 

Inflation rate down again

The inflation rate fell again in March 2025. Headline inflation, as measured by the Harmonised Index of Consumer Prices (HICP), fell to 2.3%, after standing at 2.6% in February. Energy prices declined markedly on the month as a result of lower oil prices and the appreciation of the euro against the US dollar. Food and services prices no longer increased as sharply. By contrast, the prices of industrial goods, such as motor vehicles, rose more strongly again.