The Economic Situation in the Federal Republic of Germany in September 2025

Foreign trade appreciably slows down development in early summer

According to the detailed findings of the Federal Statistical Office, economic development in Germany in early summer was slightly less favourable than had been expected: in Q2, gross domestic product (GDP) contracted 0.3% quarter-on-quarter (adjusted for price, season and the number of calendar days). For now, this has put an end to the moderate economic recovery that had began in mid-2024. However, special effects caused by frontloading of exports to the US due to the country’s tariff policies are among the main reasons for this: in Q1, German goods exports to the US increased by a strong 5.1% quarter-on-quarter in seasonally-adjusted terms, contributing appreciably to growth in foreign trade and to domestic manufacturing output. In Q2, this was followed by a rebound effect taking the shape of an 11.1% slump in U.S. exports quarter-on-quarter, causing a negative contribution of net foreign demand (exports minus imports) of -0.7 percentage points and a contraction of industrial output. By contrast, public-sector consumption and changes in stocktaking had a stabilising effect, whereas private consumption stagnated. Investment activities also weakened considerably in Q2 – especially in the construction sector, but also investment in machinery and equipment; the latter being dampened by a significant decline in public-sector investment, which has recently been highly volatile in the context of defence procurement.

The indicators available for Q3 as of now do not suggest a significant revival. It is true that the sentiment indicator trend for companies has brightened a little over recent months, mainly due to more positive business expectations. Foreign orders are also trending upwards, suggesting a gradual revival of global demand. Also, production in the goods-producing sector was up a solid 1.3% over the preceding month (in seasonally-adjusted terms). However, the marked fall of the truck toll mileage index in August points to a weak development of industrial output. Given that the car production figures of the German Association of the Automotive Industry (VDA), were among those to decline the most between August 2024 and August 2025, it is likely that this has something to do with the late date of the works holidays in some automotive companies this year, which benefitted industrial output in July, but slowed it down in August.

In terms of private consumption, Q3 has been off to a slow start: irrespective of the rise in real wages, which has recently been appreciable, retail turnover in July was lower than in the preceding month – as was consumer sentiment as measured by the German Retail Federation (HDE) and the GfK Consumer Climate Survey, meaning that private consumption is not expected to provide noticeable momentum in the short term.

Over the course of the year, the economic and fiscal policy measures taken by the Federal Government, such as the more favourable write-off system for capital goods and tax funding for commercial electric vehicles, will begin to have a visible effect. In their recently published autumn forecasts for the second semester, some institutes of economic research are expecting a moderate recovery, followed by a more dynamic development in the coming years, induced mainly by economic and financial policy measures.

Global economic development proving robust so far, but with tariff policies starting to make themselves felt

Global industrial output expanded by 3.2% between June 2024 and June 2025; between May and June 2025 it rose by 0.4% in figures adjusted for season. While output from the industrialised countries stagnated, it increased in emerging economies, up 0.7%. The less volatile three-month comparison shows an increase in global output by 0.6%, following a rise of 1.0% in Q1. The leading indicators for the global economy are currently sending mixed signals. The S&P Global Purchasing Managers’ Index (PMI) for the global economy rose by 0.4 points in August to 52.9, indicating a slight expansion compared to the preceding month. While the industrial index improved appreciably to cross the growth threshold again and stand at 50.9 points, sentiment in the services sector declined minimally by 0.1% to 53.4%. The sentix index for the global economy inched back up in September as a result of a slight improvement in the expectations component. The investors surveyed considered the economic outlook in Asia to be robust, but their assessment of the outlook for the eurozone and the United States was considerably less favourable than in the preceding month.

According to the CPB World Trade Monitor, global trade in goods contracted for the third consecutive time in June, falling 0.3% compared to the preceding month. Lower imports by the United States (-4.5%) and the emerging economies in Asia (-2.5%, excluding China) contributed to this development. Following an appreciable plus of 1.9% in Q1, when US importers frontloaded orders and filled their warehouses in anticipation of tariff increases, global trade was up by a further 0.5% in Q2. The latest indicators available at present suggest that trade activities remained stable over the summer months: the RWI/ISL Container Throughput Index bounced back from 135.4 to 137.5 points in July, making up for the two preceding declines. This was largely due to a revival of activities in the Chinese ports, whereas the expansion of container throughput in the European ports was more moderate. The trade monitor of the International Monetary Fund (IMF), which uses tracking data of vessels to estimate the size of the global goods trade, signalled a low level of dynamism, but rose slightly in July and August. As of the second semester of 2025, global trade is expected to weaken as a result of higher US import tariffs and a persistently high level of insecurity around trade policy; international organisations such as the IMF and the institutes for economic research expect global trade and global GDP to grow at slower rates in 2026 compared to the preceding years.

Foreign trade weakened in July

Trade policy developments are causing Germany’s foreign trade to remain volatile. Nominal exports of goods and services fell slightly (-0.6%) again between June and July (figure adjusted for season and calendar days). At the beginning of Q3, this puts them approximately at the average level for Q2, in which exports had already fallen a little following the considerable frontloading effects in trade with the US. While the volume of deliveries to EU member states expanded by 2.5%, exports to the United States were down for the fourth consecutive time (-7.9% month-on-month) and exports to China also fell considerably (-7.3%). Following a strong increase in the preceding month, nominal imports of goods and services registered a decline of -0.4% month-on-month in July (adjusted for season and calendar days), but the figure currently still stands at 1.0% higher than the average for Q2. In terms of imports, too, trade with European neighbouring countries picked up in July, whereas imports from third countries, especially the United States, were down. With exports falling to a greater degree than imports, the monthly external surplus was reduced from €8.1 billion to €7.8 billion in seasonally-adjusted terms.

In seasonally-adjusted terms, import prices were down 0.4% month-on-month in July – mainly as a result of lower prices in the goods-producing sector. Export prices also gave way a little (-0.2%), resulting in an improvement of the terms of trade in June (+0.2%). In real terms, the decline in exports of goods and services can therefore be expected to have been slightly smaller, whereas imports of goods are likely to have flatlined in real terms.

The leading indicators are continuing to show a mixed picture: new foreign orders continued to fall (-3.1% month-on-month, in seasonally adjusted terms). In part, this was caused by a steep fall of 17.6% in orders of intermediate goods from outside the eurozone and lower demand for capital goods from the eurozone (-7.6%). Excluding large orders, the volume of foreign orders remained almost unchanged recently (-0.1%), with the three-month comparison showing an increase of 3.4%. According to the ifo export expectations, the goods producing sector took a sober view of its export prospects for the next three months, due to the increase in US basic tariffs to 15%; on balance, the figure fell from -0.3 to -3.6 points, putting it in the negative range for more than two years straight. There were slight beacons of hope in the chemical industry and among producers of electrical equipment – both industries that expect their exports to rise.

After the significant frontloading effects at the beginning of the year, which resulted in a high level of export dynamism, a correction of the goods export trend had been expected. In the face of persistent insecurity around trade policy, the increase of the US basic tariff applicable to imports from the EU from 10 to 15%, and slow foreign demand, the outlook for exporters is continuing to be subdued.

Industrial activity reports strong start to Q2

Output in the manufacturing sector expanded by 1.3% in price-, calendar- and seasonally adjusted terms in July, following stagnation in June (-0.1%) according to revised figures. Industrial output increased by 2.2% compared with June, whilst construction rose slightly by 0.3%. In the energy sector, output fell by 4.5% compared with June.

A detailed breakdown of the data for July by sectors shows a mixed picture. The increase in activity was driven mainly by mechanical engineering (+9.5%), the production of motor vehicles and motor vehicle parts (+2.3%), the production of pharmaceuticals (+8.4%) and of data processing equipment and electrical/optical equipment (+2.3%). The production of metal products (-0.2%) and chemical products (-0.1%) held almost steady.

The production index figures for June have been revised considerably upwards, reflecting, according to the Federal Statistical Office, data corrections reported by one automotive company and the provision of supplementary data. As a result, production developed more positively than previously assumed, with manufacturing output overall stagnating (-0.1%) in the three-month comparison.

Order books in the industrial sector also remain subdued. New manufacturing orders dropped for the third consecutive time in July, falling by 2.9% in price-, calendar- and seasonally adjusted terms compared with the previous month. The decrease is mainly due to a slump in other vehicle construction, which is prone to volatility. Excluding large-scale orders, not least from this sector, new orders overall increased by 0.7%.
June had seen a decline of 0.2% according to revised figures (up from -1.0%). Recently, new foreign orders have fallen at a slightly faster pacer than domestic orders, dropping 3.1% and 2.5% respectively. Demand was weakest in the eurozone, at -3.8%. Orders from countries outside the monetary union decreased by 2.8%.

A comparison between the different industry sectors showed a mixed picture. Other vehicle construction (-38.6%), electrical equipment (-16.8%), chemical products (-2.6%) and metal products (-1.4%) experienced the largest drops in demand, whilst sectors such as pharmaceuticals (+14.8%), clothing (+10.0%), computer and optical equipment (+8.2%), and motor vehicles and motor vehicle parts (+6.5%) saw a more positive development in new orders. Mechanical engineering posted an increase of 1.8%.

The less volatile three-month comparison shows slight growth of 0.2% compared with the previous three months. The volatility in order book development continues to be largely due to the high level of uncertainty related to trade policy and geopolitics. The strong fluctuations related to orders in other vehicle construction also likely reflect progress in the procurement of military equipment in Germany and abroad.

Current data show that, most recently, industrial activity has been developing more favourably and indicate a slow stabilisation in industrial production propelled by key industry sectors such as mechanical engineering and the automotive industry. Even though sentiment remains muted overall, the upward trend in business expectations suggests that industrial production could bottom out over the remainder of the year. However, uncertainty regarding the geopolitical environment and the development of domestic and foreign demand remains high.

Downturn in retail sales – sentiment indicators increasingly weak

Price-adjusted retail sales (seasonally adjusted, excluding motor vehicles) fell by 1.5% in July compared with the previous month. Both food retail (-1.8%) and non-food retail (-0.7%) declined relative to June. Compared with July of the preceding year, retail sales reported a real increase of 1.8%, notably driven by a 14.0% rise in internet and mail-order sales year-on-year. Non-food retail grew by 3.5% compared with July 2024, whilst food retail remained flat. The three-month comparison shows a decrease of 0.3% for retail sales after four consecutive increases. Total passenger car registrations rose in August, growing by 4.6% over the preceding month and 5.3% in three-month terms. Compared with August 2024, they increased by 5.0%. Private passenger car registrations in August were down 2.0% month-on-month, but the three-month comparison shows an increase of 8.5%. New car registrations by companies and self-employed persons increased by 8.1% in July compared with June. Turnover in the hospitality sector fell in June, declining by 3.9% in nominal terms and 2.5% in price-adjusted terms over the preceding month. Compared with a year earlier, the sector recorded nominal growth of -3.4% and growth of -5.9% in real terms. Even in the half-year comparison, growth in the hospitality sector remained negative, both in real and nominal terms.

After a slight recovery in consumer spending in Q1 and stagnation in Q2 of 2025, the leading indicators suggest that the current development will remain muted. According to GfK forecasts, consumer sentiment is expected to weaken for the third time in a row in September, falling by 1.9 points to -23.6. GfK states that consumer sentiment declined slightly (-1.4 points) in August, remaining clearly negative at -21.7 points. The slowdown in August is due to a marked deterioration in income expectations, with both the propensity to save and the propensity to purchase falling slightly. The HDE consumer barometer is continuing its upward trend, but has recently deteriorated. Following a sharp increase in May, the ifo business climate index for retail (including motor vehicles) experienced the third setback in a row, falling by 1.1 points to -24.0 points in August. Whilst the assessment of the current situation dampened, expectations were up. Both indicators remain sharply negative.

The latest sentiment indicators still do not suggest any revival of the dampened consumer sentiment. In the face of an increasingly tense labour market and geopolitical uncertainty, consumers remain hesitant.

Inflation rate rises slightly, to 2.2%

The inflation rate – the year-on-year increase in the price level – rose slightly in August and now stands at +2.2% compared with +2.0% in July. This is a month-on-month increase of +0.2% in seasonally adjusted terms. Energy prices, which have gone down considerably since August 2024, continued to have a dampening effect (-2.4%). The core inflation rate (excluding energy and foodstuffs) also remained stable in August, at +2.7%. The main driver behind higher prices continues to be services, although prices for services are clearly going up at a slower pace. Looking ahead, inflation is expected to stabilise at around 2% by the end of the year, reflecting more moderate increases in collectively agreed wages and, for the moment, a subdued pace of overall economic activity.

First signs of a stabilisation on the labour market

Most recently, there have been signs that the development of the labour market could have bottomed out. Rises in unemployment have slowed down over the last few months, and in August, unemployment decreased for the first time since December 2022 in seasonally adjusted terms, with 9,000 fewer persons unemployed. However, in line with typical seasonal variations, unemployment figures rose above 3 million persons in unadjusted terms. The last time this happened was in February 2015. At the same time, underemployment fell in August for the third consecutive time, with 7,000 fewer persons underemployed. Employment remained almost flat in July, with 4,000 more persons in work. Employment subject to social insurance contributions saw the highest increase in more than a year, with 25,000 more persons employed in June. 211,000 persons were in in short-time work in June, meaning that the use of short-time work continued to fall. The number of notifications for short-time work is expected to follow this trend in August, possibly reaching its lowest point since the pandemic.

Recently, the leading indicators have remained rather uninspiring. For example, the demand for labour according to the Federal Employment Agency’s job vacancy index remained unchanged. At the same time, the ifo employment barometer points to continued job cuts in manufacturing and the services sector. Given the recent weakness in economic activity and with a recovery not expected until the turn of the year, labour market stagnation is likely to persist for the time being.

Corporate insolvencies remain elevated

According to official statistics, the number of corporate insolvencies fell by 3.9% in June compared with May, dropping to 1,957 proceedings filed. Compared with June 2024, however, insolvencies were up by 18.4%. The total number of corporate insolvencies was up 12.2% in the first semester of 2025 compared to the first semester of 2024. In the same time period, the volume of expected claims related to the corporate insolvencies fell by 13.2%, which is likely due to the fact that the companies filing for insolvency in the first semester of 2025 were less economically significant than the companies doing so in the first semester of 2024. Several factors can be mentioned as causes of the continuing high rate of insolvencies, including the persistently sluggish macroeconomic development, structural challenges, increases in costs, and geopolitical uncertainties.

The Halle Institute for Economic Research (IWH) insolvency trend for partnerships and corporations, which is methodologically narrower but more up to date than the official statistics, shows a month-on-month increase of 11.3% in August and a year-on-year rise of 10.8%. At the same time, the number of employees affected was 29.6% higher than in July and 56% higher than the August average for 2016-2019. Based on leading indicators, the IWH expects insolvencies to continue to rise in the autumn.

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[1] This report is based on data that was available as of 11 September 2025. Unless stated otherwise, these are rates of change against the respective preceding period on the basis of price-adjusted figures which have also been adjusted for calendar-day and seasonal variations.