German economy remains in the doldrums, set to recover gradually

Gulf Today

04-04-2025

German industrial orders stagnated in February and January's drop was revised to be less steep, showing that Germany's industrial sector slump could have bottomed out, but the recovery may be slow as the impact of US tariffs takes hold.
A Reuters poll of analysts had pointed to a rise of 3.5 per cent, but orders remained unchanged compared with the previous month on a seasonally and calendar adjusted basis, the federal statistics office said on Friday.
The less volatile three-month on three-month comparison showed that new orders in the period from December to February were 1.6 per cent lower than in the previous three months.
'The order situation remains bleak,' said Alexander Krueger, chief economist at Hauck Aufhaeuser Lampe Privatbank. 'US tariffs are putting even more pressure on industry and job losses are likely to continue.'
Meanwhile the German economy will recover from its prolonged period of weakness very slowly, growing by only 0.2 per cent this year, according to the new forecasts of Germany's banks' association, seen by Reuters on Wednesday.
The association had previously forecast growth of 0.7 per cent for this year in its forecasts published in September.
The economy is not expected to recover noticeably until 2026, with growth of 1.4 per cent, the Association of German Banks said.
The German economy has contracted for two consecutive years and its prospects for this year have worsened after US President Donald Trump announced a 25 per cent tariff on imported vehicles, which is expected to hit German automakers particularly hard.
The far-reaching tariffs announced by the US will deal a major blow to German industry. The US was Germany's biggest trading partner in 2024, according to the statistics office, with 253 billion euros worth of goods exchanged between them.
Germany's manufacturing sector nonetheless showed signs of recovery in March, with its first production increase in nearly two years, the HCOB Germany manufacturing PMI showed.
Ralph Solveen, senior economist at Commerzbank, said orders had been moving sideways at a low level for about a year.
Although sentiment indicators suggest that a gradual recovery is on the cards for the coming months, this is likely to be very modest due to the massive increase in US tariffs, Solveen said.
'The economy remains in the doldrums,' Jupp Zenzen, economic expert at the German Chamber of Commerce DIHK, said.
Breaking down the figures, the statistics office said domestic orders were down 1.2 per cent on the month, while foreign orders rose by 0.8 per cent.
The statistics office also revised new orders in January to a 5.5 per cent decline instead of a 7.0 per cent decrease. The difference from the provisional result is due to late reporting of data in the manufacture of metals, machinery and equipment and the automotive industry.
In 2026, the positive impact of Germany's fiscal package will be first reflected in growth figures, said Heiner Herkenhoff, CEO of the Association of German Banks.
'However, with strong reforms and the prospect of a competitive tax policy, the new government could stimulate investment earlier,' Herkenhoff said.
The group is particularly concerned about corporate investment, which is expected to decline in real terms this year.
'Even the expected increase of 3.5 per cent for 2026 is rather weak compared to previous recoveries,' Herkenhoff said, noting that before the European sovereign debt crisis corporate investment regularly rose by double-digits in economic upswings.
Meanwhile the German plant and equipment makers' orders increased unexpectedly in February, boosted by strong domestic demand in a difficult climate, the VDMA association said on Wednesday.
Overall orders rose 8 per cent in February compared with the same month last year in real terms, with German contracts jumping 11 per cent.
Foreign orders as a whole rose 7 per cent as bookings from the Eurozone increased 4 per cent and contracts from countries outside the currency union were up 9 per cent, said the VDMA.
'Part of the growth is down to the big plant business and part of it comes from the components business for global production,' said VDMA chief economist Ralph Wiechers, adding stocks were depleted so firms were re-ordering.
However, investments in new equipment were still far too rare, he said.
'In short, February was - finally - a good month in an unfortunately difficult environment,' he said.
In the less volatile three-month period from December to February, orders were up 4 per cent overall, with a 5 per cent decline in domestic orders and an 8 per cent rise in foreign ones.