RWI Konjunkturberichte

Economic output in Germany rose significantly in the first quarter despite a more difficult international environment. However, the 0.4% increase in GDP is likely to be largely attributable to anticipation effects in exports related to the erratic US tariff policy. The tariffs on imports of steel and aluminum into the US, which have been in effect since the begin-ning of June, are likely to dampen imports of these goods. Private consumption also expanded quite strongly in the first quarter, despite the fact that uncertainty indicators re-main high and unemployment has risen. Nevertheless, consumer sentiment improved during this period. Nevertheless, the pace of expansion is expected to slow significantly in the second quarter. The decline in exports in April, which is mainly attributable to a sharp drop in exports to the US, appears to be a reaction to the anticipation effects in the first quarter. In addition, tariffs on steel and aluminum came back into force at the beginning of June, which will continue to dampen exports of these goods in the future. We also assume that private consumption will not maintain the high pace of expansion seen in the first quarter. This is also indicated by the sharp decline in real retail sales in April. In the second half of the year, the economic upturn is likely to strengthen somewhat. Although the external economic pressures caused by higher tariffs on US imports of steel and aluminum are likely to persist, this forecast assumes that there will be no countermeas-ures on the part of the EU and that the US will not impose further tariffs. As this assumption is subject to considerable uncertainty, dampening effects from increased trade policy uncertainty are still to be expected. This is likely to continue to dampen German exports in the second half of the year. However, increasing demand for German goods and services from other regions of the world should gradually compensate for this. However, external economic pressures will increasingly be offset by domestic economic momentum. The recent improvement in business and consumer sentiment is likely to be linked to a significant extent to expectations of the new federal government. In order for this improvement in sentiment to actually lead to an increase in investment and consumption, the federal government must also set the course for more growth in the coming weeks and months. The investment program and now also the latest decisions of the coalition committee have created some of the conditions for this. However, further steps must now follow. Against this backdrop, it is to be expected that private investment in particular will expand at a significantly faster pace than before during the forecast period, given falling interest rates and rising public demand. However, structural problems remain and are also limiting the shortterm recovery potential of the German economy. Overall, the pace of macroeconomic expansion is likely to pick up again in the second half of the year. On average for the year, GDP is expected to grow by 0.3% this year. Next year, when the stimulus from public investment is likely to increase, GDP is expected to grow by 1.5%. This growth is significantly higher than the growth in production potential, which is expected to be around 0.3% next year. The output gap is therefore likely to narrow significantly next year. In the first quarter of 2025, the seasonally adjusted number of people in employment in Germany remained unchanged compared with the previous quarter. In May 2025, the number of unemployed was 197,000 higher than in May of the previous year. Nevertheless, the unemployment rate fell slightly by 0.1 percentage points to 6.2%. However, some indi-cators now suggest that fewer companies in Germany are planning to cut jobs. Overall, the unemployment rate is expected to rise to an average of 6.3% this year and fall slightly to 6.2% next year. Inflation is expected to be 2.1% in May. Falling energy prices and low inflation rates for other goods contributed to a steady, albeit slow, decline in the inflation rate this year. Energy prices are expected to continue to fall slightly this year and rise slightly in 2026. The expected increase in the national CO₂ price for fuels within the price corridor opened at the beginning of next year is likely to contribute to this. Overall, prices are expected to rise by 2.2% in 2025 and 2.0% in 2026. At the beginning of 2025, the Bundestag set the course for higher government spending with the new financial constitution. However, it will likely take some time before the expanded possibilities for taking on new debt and spending from special funds are noticeably utilized. New projects have certain lead times due to planning and procurement, so that the impact on government spending will only materialize from next year onwards. Fiscal policy is therefore increasingly expansionary in the forecast period. In relation to GDP, the government's financing deficit is likely to be slightly smaller in 2025 at 2.6% than in the previous year. Next year, however, the deficit is likely to rise again to 2.9% of GDP. The Maastricht debt ratio of public finances is expected to rise from over 65% in 2025 to around 66% at the end of 2026.

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