Germany: GDP rebounds in the third quarter
Economy escapes the doldrums but remains sluggish: A second reading confirmed that the German economy avoided recession by a whisker in Q3: Seasonally adjusted GDP rebounded 0.1% on a quarterly basis, contrasting the 0.3% contraction recorded in Q2. That said, the reading fell short of both the preliminary estimate of 0.2% growth and the Euro area’s average expansion of 0.4%. On an annual basis, economic growth was stable at Q2’s 0.1% in Q3.
Private spending and fixed investment improve: Domestically, the quarterly upturn was largely underpinned by a recovery in household purchasing power: Private spending rose at an over one-year high clip of 0.3% in the third quarter (Q2: -0.5% qoq s.a.), buoyed by surging real wage growth. Moreover, fixed investment dropped at a more moderate rate of 0.1% in Q3, following the 2.1% decrease recorded in the prior quarter; softer declines in capital outlays in construction plus machinery and equipment fueled the improvement. Less positively, government spending growth waned to 0.4% in Q3 (Q2: +1.6% qoq s.a.).
On the external front, net trade subtracted 0.9 percentage points from overall GDP growth, deteriorating from the 0.4 percentage points detracted in the previous quarter. Exports of goods and services contracted 1.9% in Q3 (Q2: +0.2% qoq s.a.), marking the worst reading since Q2 2020. Meanwhile, imports of goods and services growth waned to 0.2% in Q3 (Q2: +1.2% qoq s.a.), marking the worst reading since Q4 2023.
Economy to remain uninspiring in 2025: Our panelists expect GDP growth to remain sluggish through Q4 2025 due to a weak industrial sector, and it will undershoot both its past-decade growth and the Euro area average next year as a whole. Nevertheless, the economy is forecast to regain momentum in 2025 as a whole as rebounding investment plus faster increases in private spending and exports outweigh slower public expenditure growth. The timing and size of U.S. tariffs under President Trump is a key risk factor, while political instability weighing on investor sentiment is a downside risk.
Panelist insight: ING’s Carsten Brzeski said:
“The expected economic policies of the incoming US administration as well as continued policy uncertainty as a result of the German government’s collapse are likely to weigh on sentiment in Germany. Whether it’s the prospects of tariffs or US tax cuts and deregulation indirectly undermining German competitiveness, it’s hard to see how US economic policies will not be negative for the German economy. […] Looking beyond the winter, the German growth outlook will heavily depend on the new government’s ability to strengthen the domestic economy amid a potential trade war and even stronger industrial policies in the US.”
Analysts at Goldman Sachs commented on the impact of early elections:
“The early elections provide an opportunity to tackle Germany’s big economic challenges. While some additional fiscal support seems likely, we believe any fiscal expansion is likely to be limited in size, focused mostly on investment and support growth notably only from 2026. Decisive structural reforms could boost Germany’s growth prospects—as they did in the early 2000s—but likewise take time to implement, leaving a weak growth outlook for 2025.”