Germany's Economy Grows 0.4% in Q1, Outpacing Previous Estimates Amid US Tariffs

Germany's GDP grew 0.4% in Q1, exceeding the 0.2% estimate, driven by stronger exports and manufacturing. The growth was fueled by US firms stockpiling goods ahead of President Trump's tariffs. The German economy is expected to flatline this year, but the first-quarter performance suggests potential for growth revisions. The government's increased fiscal space and potential ECB interest-rate cuts could boost consumer spending.

Germany's economy grew by 0.4% in the first quarter of 2025, according to official data released on Friday [1]. This figure exceeded the initial estimate of 0.2% growth, marking a significant rebound from the economic struggles of recent years. The Federal Statistical Office attributed the growth to unexpectedly strong exports and manufacturing activities.

The economic upturn was primarily driven by U.S. firms stockpiling goods ahead of President Trump's tariffs, which are set to take effect in the coming months. Carsten Brzeski, global chief of macro at ING bank, characterized the improved first-quarter showing as a "positive one-off" in the short term, fueled by businesses attempting to mitigate the impact of the tariffs [1].

Germany has been struggling to generate significant growth for years, with the economy shrinking in each of the last two years. The last time Germany saw stronger growth was in the third quarter of 2022, when GDP expanded by 0.6%. The recent growth suggests a potential for upward revisions in economic forecasts for the remainder of the year [1].

The German government's panel of independent economic advisers predicted that GDP will stagnate this year and grow by 1% next year. The panel cited headwinds from U.S. President Trump’s tariffs and trade threats but noted that a huge infrastructure investment package could offer opportunities for improvement next year [1].

The improved economic performance is also reflected in the construction sector. Austrian construction services firm Strabag (VIE:STRV) reported a strong start to 2025, with output volume rising 8% year-on-year to €3.72 billion in Q1 [2]. The order backlog reached a new record of €28.05 billion, up 14% from the previous year. Key wins came from high-tech construction sectors, including semiconductors, data centers, and medical manufacturing, alongside major energy and rail infrastructure projects [2].

The German economy's growth in the first quarter suggests that the government's increased fiscal space and potential ECB interest-rate cuts could boost consumer spending. However, the impact of U.S. tariffs remains a significant concern for businesses and investors alike.

References:
[1] https://www.barchart.com/story/news/32541725/germanys-economy-grew-by-0-4-in-the-1st-quarter-thats-double-the-initial-estimate
[2] https://www.investing.com/news/earnings/austrias-strabag-reports-record-order-backlog-confirms-2025-guidance-4058735