German Economy Ministry: There are still no signs of a recovery in the labour market in the 2Q.

German Economy Ministry: There are still no signs of a recovery in the labour market in the 2Q.

The German Economy Ministry has reported no signs of recovery in the labor market during the second quarter (2Q) of 2025. Despite the overall economic growth and positive indicators, the labor market remains stagnant, with unemployment rates and employment levels showing minimal change.

According to the German Institute for Economic Research (DIW), the unemployment rate is projected to rise slightly from 6.0 percent in 2024 to 6.3 percent in 2025, but it is expected to fall back to 6.1 percent by 2026. The Institute for World Economy (IfW) also reported a similar trend, with registered unemployment expected to rise by 161,000 in 2025 and then fall by 63,000 in 2026 [2].

The lack of recovery in the labor market is particularly concerning given the overall economic growth. The Kiel Institute for the World Economy (IfW Kiel) noted that the recovery is largely driven by domestic factors, such as private consumption and corporate investment, but the labor market remains weak [2]. The German economy grew by 0.4 percent in the first quarter of 2025, with exports to the US being brought forward in anticipation of tariff increases [1].

The German Economy Ministry has attributed the lack of labor market recovery to various factors, including the impact of US trade policies on exports and the ongoing trade conflict. The IfW Kiel noted that the erratic tariff policy of the United States continues to fuel uncertainty for German foreign trade, significantly reducing competitiveness [2]. The Halle Institute for Economic Research (IWH) also mentioned that the slow licensing for exports of rare earths from China has led to a shortage that is threatening production in parts of Germany’s manufacturing industry [3].

The German government is expected to implement expansionary fiscal policies to support economic growth, which could potentially have a positive impact on the labor market in the long run. The new government is expected to expand infrastructure and defense spending and implement measures such as tax incentives and a higher commuter allowance [1]. However, the immediate effects of these policies on the labor market remain uncertain.

In conclusion, while the German economy shows signs of recovery, the labor market continues to face challenges. The German Economy Ministry and other economic research institutes have highlighted the need for further analysis and policy interventions to address the labor market recovery.

References:
[1] https://www.ifo.de/en/facts/2025-06-12/ifo-economic-forecast-summer-2025
[2] https://www.ifw-kiel.de/publications/news/kiel-institute-summer-forecast-light-at-the-end-of-the-tunnel/
[3] https://www.icis.com/explore/resources/news/2025/06/12/11110009/germany-shows-signs-of-recovery-us-trade-policies-weigh-on-outlook-institutes