New data from the Ifo Institute reveals a contraction in economic output across fourteen of Germany’s sixteen federal states during the second quarter of 2025. The calculations, recently released, indicate a widespread slowdown impacting regional economies.
Sachsen-Anhalt experienced the most significant decline, registering a -1.1 percent decrease in economic performance compared to the preceding quarter. Niedersachsen followed closely with a -0.7 percent drop and Bremen recorded a -0.5 percent contraction.
According to Robert Lehmann, an Ifo Institute economist, the slowdown is partly attributable to shifts in business activity linked to evolving US trade policies. “Many companies proactively accelerated purchases into the first quarter of the year due to uncertainty surrounding US tariff decisions” Lehmann explained. “This resulted in a subsequent shortfall in activity during the second quarter.
The disparate effects of repeated tariff announcements and suspensions are impacting various sectors unevenly and consequently, impacting federal states to differing degrees. This variation is particularly noticeable when comparing sectors like the chemical and automotive industries, alongside machinery manufacturing – all of which rely heavily on the US market as a key export destination.
Rheinland-Pfalz and Saarland represent the exceptions to this trend. Both states saw slight economic growth in the second quarter, rebounding from a weaker start to the year. Lehmann noted that the Ifo business climate index for commercial enterprises has recently shown the most significant improvement in these two regions, coupled with a more favorable performance in industrial turnover compared to other states.