German GDP in Q4 weaker than expected

With a decline of 0.2%, German Q4 GDP was slightly worse than the statisticians had forecast a fortnight ago.

people___profile_24_outline
Dr. Jörg Krämer

Commerzbank Economic Research

01/30/2025

For the first quarter, leading indicators such as the Ifo business climate or incoming orders are unfortunately not yet signaling any improvement. From the spring onwards, an anemic upward trend is on the cards at best. The deep structural crisis in manufacturing and Trump's tariff threats are dragging everything down. Our forecast of 0.2% for 2025 is subject to downside risks due to the sharper decline in Q4 GDP.

German GDP shrank by 0.2% in the fourth quarter compared to the third quarter. The Federal Statistical Office has thus revised its figures from a fortnight ago downwards by 0.1 percentage points. The decline was primarily caused by falling exports, while private and government consumer spending increased.

Otherwise, the usual revision of the past quarters has not led to any changes. The starting point for the 2025 forecast has therefore only deteriorated by 0.1% because the fourth quarter was slightly weaker. Our forecast for 2025 as a whole of 0.2% is subject to slight downside risks.

What do the leading indicators say for the first quarter?

The leading indicators are not yet signaling any significant improvement for the first quarter. It is true that the PMI has recovered in recent months. But the Ifo business climate is still trending downwards despite the recovery in January. And incoming orders have only stabilized at a very low level. All in all, the German economy is unlikely to grow much in the first quarter.

Structural crisis and customs uncertainties are a burden

The past ECB rate cuts actually suggest that the German economy will recover after the first quarter. But the structural crisis in manufacturing is dragging everything down. As the chart below shows, industrial production has been falling for six years. There has never been such a long period of contraction since German reunification. This is not only due to declining demand from China, but also to years of erosion of Germany's competitiveness. Added to this is the uncertainty caused by Trump's tariff policy. It is true that the EU could probably avoid broad-based US tariffs against the EU by taking a pragmatic deal making approach. But this is not certain, especially as the EU itself tends towards protectionism and is strongly in favor of retaliatory tariffs.

For full text see attached PDF-Version.