The impact of trade policies, particularly those initiated by former President Donald Trump, has reverberated across economies, notably affecting Germany. The German economy experienced a slight contraction of 0.1% in the second quarter of 2025. This downturn was primarily due to reduced investments in equipment and construction, although consumer spending by both private and public sectors showed an increase. Analysts attribute this contraction partly to the US tariffs that have hindered German exports.
During the first quarter, many German companies had expedited their exports in anticipation of these tariffs, leading to a temporary economic boost. However, the subsequent quarter saw the repercussions of these trade policies. Despite this, optimism remains among economic experts who foresee a recovery in the fall, spurred by government plans for substantial investments in infrastructure and defense.
The recent trade agreement between the EU and the US has provided a semblance of stability, offering more predictability in the market. This deal, while still presenting challenges, is expected to ease some of the economic pressures and support a recovery path. Germany's economic performance contrasts with other European countries like Spain and Portugal, which recorded economic growth in the same period.
While the German economy faces hurdles from the US trade policies, the government’s planned investments are anticipated to rejuvenate growth. Analysts suggest that increased state spending will inject momentum into the economy by winter. Moreover, a steady improvement in business sentiment indicates a potential for moderate growth in the latter half of the year, provided that consumer confidence remains stable.
