Trump's tariffs boost exports, stagnation remains

Wiesbaden (dpa) - A surprisingly strong tailwind in the midst of the economic slump: the struggling German economy grew by 0.4 percent in the first quarter compared to the previous quarter, twice as much as initially estimated by the Federal Statistical Office. However, economists believe this to be a one-off effect: many businesses were brought forward due to US President Donald Trump's tariff policy, which was already on the horizon, meaning that German industrial production and exports rose sharply in March.

"Donald Trump is boosting growth with his tariffs," commented Thomas Gitzel, Chief Economist at Liechtenstein-based VP Bank. ING Chief Economist Carsten Brzeski wrote that the first quarter of 2025 was the best for Europe's largest economy since the third quarter of 2022 - thanks to Trump. However, this will "soon become a positive flash in the pan".

Trump's tariffs cloud the outlook

Stagnation is already looming in the second quarter, as higher tariffs on imports into the USA are an additional burden for Germany's exporters, who are already struggling with weak demand on the global markets. After pull-forward effects in the first quarter, the subsequent quarters are likely to be weaker, said Bundesbank President Joachim Nagel at the meeting of the major industrialized nations (G7) in Canada: "We expect economic development to remain weak in 2025, which could be described as stagnation."

Many exporters are no longer as pessimistic as they were in April, according to the Ifo Institute's latest survey. "However, caution is required, as there is still no fundamental agreement between the USA and the EU regarding the level of tariffs," said Klaus Wohlrabe, head of Ifo surveys.

Surprisingly good economy in March

According to the Federal Statistical Office, rising exports and higher consumer spending boosted gross domestic product (GDP) in the first three months of the year. The reason for the higher growth was the surprisingly good economic development in March, explained Ruth Brand, head of the authorities. Initially, the Wiesbaden statisticians had estimated GDP growth of 0.2 percent.

"Production in the manufacturing industry and exports in particular developed better than initially assumed," said Brand. Production in important sectors such as the automotive, mechanical engineering and chemical industries increased.

Cars and medicines quickly across the Atlantic

Exports in particular, especially of cars and pharmaceuticals, supported the economy in the first quarter with an increase of 3.2%. Both are important export goods to the USA. The statisticians speak of pull-forward effects in the smouldering trade conflict with the USA.

Consumers with a propensity to spend also helped the economy. At 0.5%, private consumer spending rose more strongly than in previous quarters. With inflation easing and wages rising in some sectors, many people have more money in their pockets. There was also more investment: more money flowed into both buildings and equipment.

The positive news from the German economy has been piling up recently. Rising order figures in industry are creating more confidence and the mood in the economy is brightening. The German economy is slowly regaining its footing, said Ifo President Clemens Fuest. Many economists had therefore expected the gentle upturn at the start of the year. However, Trump's erratic tariff policy is clearly clouding the outlook for export-oriented German industry. Despite the ray of hope in the first quarter, the German economy is facing its third consecutive year without growth in 2025 - something that has never happened before in the history of the Federal Republic of Germany.

Stagnation expected for 2025

Forecasts for the German economy have recently been lowered one after the other: the German Council of Economic Experts ("Wirtschaftsweise") expects only stagnation for 2025 - as do the International Monetary Fund (IMF) and the EU Commission. However, there are also initial more positive estimates: Commerzbank believes that the German economy could grow slightly this year.

In the coming year, gross domestic product should then increase noticeably again: The German Council of Economic Experts expects growth of 1.0%. The planned billions in federal spending on defense and infrastructure should boost the economy.

Hope for reforms and a solution to the customs dispute

Companies are also hoping for reforms. Economics Minister Katherina Reiche (CDU) has held out the prospect of an initial relief package by mid-July. It is to include a reduction in electricity tax and labor market reforms. However, the biggest hurdle for the economy remains the US tariffs. Following talks in the G7, Finance Minister Lars Klingbeil (SPD) recently saw positive signs of an easing of tensions in the customs dispute - it would be a relief.