Deutsche Bank sees Germany avoiding stagnation in 2025

Germany’s economy is showing signs of revival. According to analysts at Deutsche Bank Research, the country has gained enough momentum to avoid stagnation in 2025. 

Revised data from Germany's Federal Statistical Office indicates that GDP grew by 0.4% in the first quarter of 2025, potentially marking a turning point after a period of underperformance.

Part of this growth came from a sharp rise in exports in March, particularly in the pharmaceutical and automotive industries. Deutsche Bank analysts suggest that companies may have rushed shipments in anticipation of new tariffs.

Domestic demand also improved. Private consumption rose by 0.5%, while investment increased by 0.9%, signaling stronger internal momentum. The only pressing factor was government spending, which declined by 0.3%. Deutsche Bank attributed this drop to the federal government operating under a temporary budget. This condition is expected to change once a formal budget is approved.

Analysts expect the positive trend in domestic demand to persist through the second quarter of 2025. Confidence has been bolstered by a rise in the Ifo business climate index, although the composite Purchasing Managers’ Index slipped to 50 points, the threshold separating expansion from contraction. Nevertheless, both indicators suggest a rebound in the manufacturing sector.

Meanwhile, Deutsche Bank estimates that the recovery will remain fragile in the third quarter due to persistent trade uncertainty. A potential hike in US tariffs scheduled for July is still on the agenda. However, analysts anticipate greater stability by the fourth quarter of 2025 after Berlin exits the temporary budgeting phase and unveils an expansionary fiscal plan for 2026. This could potentially drive stronger overall investment. In addition, a further normalization in household savings is expected to boost consumption.

Against this backdrop, the bank forecasts a continued GDP growth rate of 0.3% for the entire year. Deutsche Bank argues that consensus expectations for another year of stagnation underestimate the underlying improvement in momentum.