Germany's economic slump not yet over as economy shrinks unexpectedly
Analysts surveyed by financial data firm FactSet had expected zero growth between April and June.
The economy's performance was hit by lower investments in several areas, including construction, although household and government consumption provided some support, the data showed.
Also on Wednesday, official data showed Italy's economy contracted by 0.1 percent in the second quarter, with exports acting as a drag on the overall performance.
France's economic growth however picked up in the April to June period, expanding by 0.3 percent.
Growth data for the whole eurozone is due to be released later Wednesday.
Destatis also downgraded the result for the German economy's first quarter to 0.3 percent growth, from 0.4 previously.
READ ALSO:
Germans reluctant to spend despite easing inflation
First quarter growth had been been surprisingly strong as US companies rushed to import products before tariffs came into effect, but that front-loading effect lost steam in the second quarter.
"After some good figures, it's now back to disappointment for the German economy," said LBBW bank analyst Jens-Oliver Niklasch.
"The impression remains that the German economy is treading water. Added to this is the rather unsatisfactory situation with high US tariffs. We will need to make some efforts in Germany to get back on a stable growth path."
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The German economy shrank in both 2023 and 2024 due to a manufacturing slump and weak demand for its key exports, and US President Donald Trump's tariffs are threatening to push it into a third straight year of contraction.
Recent indicators, including business and investor confidence surveys, had suggested that the downturn may have bottomed out and some economic institutes expect the economy to return to slight growth this year.
READ ALSO:
German Chancellor Merz welcomes EU trade deal with US
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DW
13 hours ago
- DW
Will Germany raise retirement age beyond 67? – DW – 08/01/2025
Germany's old-age pension system faces collapse under the weight of an aging population. The country's new Economy Minister Katherina Reiche wants Germans to work longer to make up for it. For German Economy Minister Katherina Reiche, there's a simple way to fix Germany's pension system: "We need to work more and longer," she flatly told the newspaper in late July, instantly triggering a new debate along familiar lines. Reiche argued that the pledges her government had made in the coalition contract earlier this year were just not going to be enough. Germany's aging population has long been recognized as a problem. The population's median age — 46.7 — is the eighth-highest in the world and the third-highest among major economies, after Japan and Italy. By 2040, fully a quarter of the population is expected to be 67 or older. This year, birth rate fell to its lowest point in 20 years. This has had a marked effect: In the early 1960s, there were still six actively insured workers for every pensioner — that ratio is now 2 to 1 and sinking, and in 2025, two-thirds of the Labor Ministry's budget will go into the pension system: €121 billion ($140 billion). "It cannot be sustainable in the long term for us to work only two-thirds of our adult lives and spend one-third in retirement," said Reiche. "Unfortunately, too many people have been refusing to accept the demographic reality for too long." Reiche's statements triggered a quick backlash from her center-left Cabinet colleagues. Lars Klingbeil, finance minister and leader of the Social Democratic Party (SPD), which traditionally sees itself catering to a working-class electorate, described Reiche's statement as a "slap in the face" for many workers. "It's easy to say that when you're sitting in your comfortable chair in Berlin," Klingbeil told news outlet ntv. "But you should go out and talk to the people in the country who are working as roofers, who are working as nurses, who are working as teachers and are really wearing themselves out and who are already struggling to make it to 67." Trade unions, meanwhile, said Reiche's plan was simply a new way to cut pensions. Many workers will be unable to work to a higher age for health reasons, forcing them to retire early, and accept deductions that permanently reduce their pensions. The contract agreed by Germany's two governing parties — Reiche's conservative Christian Democratic Union (CDU) and the SPD — promised that Germany's current retirement age would not be raised. Instead, the contract pledged, "We want more flexibility in the transition from job to pension." In practice, "flexibility" means offering incentives to people who work beyond the legal retirement age. This would include measures like the so-called "Aktivrente" ("active pension"), by which any income of up to €2,000 per month is tax-free for those above the legal retirement age. Jan Scharpenberg, pensions expert at the financial advice company Finanztip, is convinced that the German pension system urgently needs to be reformed, but that the debate around it has become tedious. "The length of a working life is just one of the levers that can be adjusted to reform the German pension system in order to deal with the demographic transformation," he told DW. "And if I'm being really honest, I think it's a bit exhausting how for years and decades the same pro- and con arguments are being made, but no actual reform is put in place." While he agrees that raising the legal retirement age may become necessary, that doesn't negate the argument that it would, in practical terms, mean pension cuts for some people. "Those two things can be true at the same time, but that shouldn't prevent a pension reform," he said. "A reform of the system will only work if you combine and pull several levers." The retirement age system in Germany is dauntingly complicated. At the moment, the legal retirement age in Germany is 65, though it is scheduled to rise to 67 by 2031. But the age is staggered depending on the individual's year of birth, and how long they have paid into the system. And there are exceptions: People who are disabled or have paid into the system for 45 years, for example, can retire earlier. A contribution of 18.6% of an employee's gross monthly salary goes into the state retirement fund, with the employee and the employer each paying half. The government expects this contribution rate to rise to 22.3% by 2035, where it is supposed to level out until 2045. Johannes Geyer, public economics researcher at the German Institute for Economic Research (DIW), pointed out that the reason why the retirement age issue is so contentious is because it affects workers differently. "There are lot of people who can't imagine working beyond the age of 67," he said. "But those in perhaps better paid jobs can do that." To view this video please enable JavaScript, and consider upgrading to a web browser that supports HTML5 video But many experts say the narrow focus on the retirement age is unhelpful, as there are many different ways of increasing contributions to the pension system. One measure, for example, would be to provide better child care facilities, so that more single parents are able to work full-time and therefore pay higher pension contributions. Another solution might be to make migrating to Germany to work easier and more attractive. There are also proposals to increase the number of people paying into the public system by including the self-employed and civil servants, a proposal made recently by Labor Minister Bärbel Bas from the SPD. Meanwhile, on the expense side of the ledger, some more painful measures might be put in place to balance the books. Apart from raising the retirement age, that might mean extending the "waiting time" (the number of years one must pay into the system before one can begin to draw a pension), or reducing the rate at which pensions increase every year. The pension increase is calculated based on the development of gross wages and salaries in Germany and is 3.74% for 2025. In the coalition agreement, the SPD was able to secure the pension level at 48% of the standard pension to the average income (before taxes) until 2031. Critics have labeled this as untenable. According to Scharpenberg, a mix of measures needs to be implemented. But instead, he said, the perennial political debate revolves around doing one measure or another, as if it were impossible to combine them. The German pension system is structured very differently to other European countries. In Denmark, for example, the retirement age is linked to the country's life expectancy, so that it rises automatically as people live longer. And in Sweden, an individual's contributions are invested in various financial markets and then the profits are paid out when that person reaches old age. "That helps to diversify the risk," said Geyer. "They're not so dependent on the aging of their own population." In the German system, on the other hand, contributions from workers are put into a single pot, which is used to finance current pensions. Geyer argues that, unlike other European countries, Germany has failed to develop private insurance options to complement state pensions so that they help the whole population, rather than just the rich. "Other countries have done that significantly better," he said. "The UK, the Netherlands, Denmark, Sweden — they all have systems of obligatory insurance with relatively low costs and good profits. That's missing here."While you're here: Every Tuesday, DW editors round up what is happening in German politics and society. You can sign up here for the weekly email newsletter Berlin Briefing.
Local Germany
17 hours ago
- Local Germany
German beer sales fall to record low
From January to June, sales of alcoholic beer fell 6.3 percent compared to the same time last year to 3.9 billion litres, federal statistics agency Destatis said Friday. That was the lowest since figures on beer sales were first collected in 1993, it said, with demand declining both at home and abroad. Domestic sales slumped 6.1 percent year-on-year to 3.2 billion litres, similar to the size of the drop seen at the beginning of the coronavirus pandemic in 2020. READ ALSO: Germany loses top spot as Europe's largest beer maker Exports meanwhile tumbled 7.1 percent. Like many other industries, German beer exporters have in recent months faced tariffs in the major US market imposed by President Donald Trump. Beer consumption has fallen over recent decades in Germany as a result of an ageing population as well as changing tastes -- non-alcoholic beers have been growing in popularity, although they are not counted in the figures. Holger Eichele, head of the German Brewers' Federation, said 2025 was set to be "an extremely demanding year for us". "Geopolitical risks have greatly intensified and uncertainty is increasing for exporters," he said. Advertisement He also pointed to "consumers not wanting to spend." This is particularly true in Germany, where the economy is struggling to pull itself out of a long downturn.
DW
19 hours ago
- DW
Trump tariffs: Where do we stand after new levies unveiled – DW – 08/01/2025
Just hours before an Aug. 1 deadline expired, US President Donald Trump imposed sweeping new tariffs on imports from global trading partners, escalating an aggressive trade policy aimed at reducing the US trade deficit. In his election campaign, Donald Trump once said that "tariff is the most beautiful word in the dictionary." Now, after six months in office, the US president is eager to turn his very specific vision of global trade into reality. With a move that shocked both politics and business across the world, Trump announced on April 2 that he would impose a "baseline tariff" of 10% on all goods imported to the United States. In addition, goods from about 60 other trade partners would face so-called reciprocal tariffs that were even higher and meant as payback for the unfair trade policies of what Trump called "the worst offenders." However, on July 31 Trump signed an executive order again imposing new, and even higher tariffs on scores of countries, citing emergency powers he said he is using to shrink the country's trade deficits with many of its trade partners. The executive order lays out rates to be applied against nearly 70 countries, ranging from 10% to 41% for goods transshipped through other jurisdictions to avoid US duties. In a minor reprieve that opens the door to further negotiations, the White House said the measures will take effect next week for most countries. The order came after a flurry of tariff-related activity in previous weeks that saw some countries strike more favorable terms for trade with the July 27, the US and the European Union agreed that European goods imported to the US would face a 15% baseline tariff. This includes the EU's crucial automobile sector, which had been subject to a 25% levy since Trump took office earlier in January. 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Under a deal struck in July, Japan's exports to the US will be taxed at 15%, including automobiles, an industry accounting for 30% of Japanese exports to the US in 2024. Tariffs of 50% on Japanese steel and aluminium will continue to apply and the White House said that under the deal, Japan would make an unspecified $550 billion investments in the US. With regard to South Korea, recent negotiations have resulted in a 15% baseline tariff on all imports from that country — down from a threatened 25% for one of the US's top-10 trading partner and key Asian ally. Trump said Wednesday that South Korea had also agreed to invest $350 billion in US projects and to purchase $100 billion of liquefied natural gas and other energy products. Furthermore, South Korea will accept American products, including automobiles and agricultural goods into its markets and impose no import duties on them, he added. Washington has also concluded trade deals with the Philippines, Vietnam, Indonesia and Pakistan. Products from the Philippines — a major exporter of high-tech items and apparel — will face a 19% levy. Vietnam was able to lower a threatened reciprocal tariff of 49% under a deal reached in early July. A main exporter of clothing and shoes to the US, Vietnam will see its shipments subject to a 20% tariff. Indonesian exports to the US will be taxed at 19% and, according to Washington, nearly all US goods will be able to enter Indonesia tariff-free. Pakistan, which was facing a potential 29% tariff under Trump's April 2 announcement, said Thursday it had struck a deal that would result in lower tariffs, as well as an agreement in which Washington would help develop the country's oil reserves. To view this video please enable JavaScript, and consider upgrading to a web browser that supports HTML5 video China — the world's second-largest economy — is a special case. Washington and Beijing had raised tariffs on each other's goods to more than 100% before temporarily lowering rates for a 90-day period. That pause is set to end on August 12. China has taken an aggressive stance in response to Trump's brief threat of imposing a 145% levy on imports, retaliating with tariffs of its own on US goods and blocking the sale of vital rare earth minerals and components used by American defense and high-tech manufacturers. Countries without bilateral trade agreements will soon face reciprocal tariffs ranging from 25% to 50%, with a baseline of 15% to 20% for any not making a deal. Among the tariff levels adjusted in Trump's latest order, Switzerland now faces a higher 39% duty. The Swiss government said Friday it would negotiate to avoid the higher levy, which will potentially hammer its key pharmaceutical industry. The new rate is up from the 31% previously threatened. Brazil is one of the few major economies to run a trade deficit with the United States, meaning Brazil imports more from the US than it exports to the country. Nevertheless, the US president has threatened to impose a 50% tariff on Brazil's products because of political differences. Trump called a current trial against former Brazilian President Jair Bolsonaro a "witch hunt," and has demanded the release of the ultraconservative politician. Brazil's current president, Luiz Inacio Lula da Silva, has in turn called Trump an "emperor" and said he didn't fear publicly criticizing Trump. India, meanwhile, has drawn Trump's ire for its huge trade surplus with the US and its trade ties with Russia. As a result, Trump announced on Wednesday that he would impose a 25% tariff on Indian goods, plus an additional "penalty" because of India's purchase of Russian oil that helps Moscow finance its war in Ukraine. On his Truth Social platform, Trump also wrote that India "is our friend," but added its tariffs on US products "are far too high." Canada and Mexico — two of the US' biggest trading partners — haven't been spared Trump's tariff threats either, even though trade between the three neighbors is governed by the US-Mexico-Canada (USMCA) trade agreement, negotiated during Trump's first term in office. Earlier this month, Trump threatened to raise current tariffs on Mexico from 25% to 30% starting on Aug. 1, saying President Claudia Sheinbaum's government hadn't done enough to help secure their shared border. Many goods certified under the USMCA free-trade pact, however, have remained exempt. On Thursday, the US president extended Mexico's current rates for 90 days to allow more time for trade negotiations. "The complexities of a Deal with Mexico are somewhat different than other Nations because of both the problems, and assets, of the Border, Trump said in a Truth Social post, following a call with Sheinbaum. On Thursday, the US president singled out Canada for a separate tariff hike raising levies for goods from the country fom 25% to 35% starting on Aug. 1. Trump also warned of more trade consequences for Canada after Prime Minister Mark Carney announced plans to recognize a Palestinian state. Trump's order also cited Canada's failure to "cooperate in curbing the ongoing flood of fentanyl and other illicit drugs" as well as its "retaliation" against his measures. In March, Washington already imposed a 25% tariff on Canadian cars and auto parts, adding a 50% levy on steel and aluminium imports in June.
