According to the German federal government, a cyclical upswing in Germany is not yet in sight.
Against the backdrop of the persistently weak domestic and foreign demand, the increased internal and geopolitical risks, particularly in light of US trade policy and the resulting dampened consumer and investment sentiment, a “perceptible economic upswing” is not yet recognizable at the start of the year, according to the monthly report of the Federal Ministry of Economics for February, published on Thursday.
Germany’s economic performance, according to the report, contracted by 0.2 percent in the fourth quarter of 2024 compared to the previous quarter, weaker than initially reported. Current leading indicators show a slight brightening, with the division between a positively trending service sector and a recessionary development in the manufacturing sector continuing, as the ministry stated.
There is also no trend reversal in sight for industrial trends. Furthermore, the Federal Ministry of Economics is concerned about job security and ongoing geopolitical uncertainty, which is still hindering a perceptible recovery of the consumer climate. The leading indicators, meanwhile, do not suggest a “perceptible recovery” on the labor market at the start of 2025.
Overall, it is expected to be difficult for the German economy to break out of the ongoing stagnation at the start of the year. A weak domestic and foreign demand situation, increased political uncertainty and underutilized capacities are weighing on production and investment. Moreover, the decreased competitiveness of the German industry is likely to continue to dampen export development. Additionally, the announced tightening of the global tariff regime by the US government poses a “downside risk” for the economy.