German economy hit by trade war: Exports and industrial production hit by tariff dispute with US. Economists now expect fiscal package to take effect
Despite the signs of hope, Germany still seems far from sustainable economic growth. German industry has started the second quarter with a setback. According to data from the Federal Statistical Office, industry, construction and energy suppliers reduced production in April by 1.4% compared to the previous month, an unexpectedly sharp decline. In April, German exports fell for the first time since October 2024. Statisticians estimated a decrease of 1.7% compared to the previous month, to 131.1 billion euros.
The frightening effects of the tariff war launched by US President Donald Trump are slowly starting to manifest themselves in the economic data. “Instead of a new beginning, there is disappointment,” comments Volker Treier, Director of Foreign Trade at the German Chamber of Industry and Commerce (DIHK), regarding the export data. “The drastic decline in exports to the US is having a significant impact.” The same applies to industrial production: the Federal Ministry of Economics is warning of possible setbacks due to trade uncertainty stemming from US tariff policy. “As a result, the prospects for a recovery in industrial production have become somewhat bleaker recently,” the ministry states.
However, experts also warn against excessive pessimism. Sebastian Dullien, scientific director of the Institute for Macroeconomics and Economic Research of the Hans Böckler Foundation, believes that the decline in exports and production is not a cause for undue concern: “Overall, the indicators suggest that the situation in the industry is stabilizing and that we may be approaching a turning point for the better.”
Commerzbank also sees signs of a possible improvement. Analyst Ralph Solveen points to the increase in orders and the rise in the ifo business climate index: “We therefore assume that the German economy will return to growth in the coming quarters, although higher US tariffs and structural problems in the German economy will prevent a strong recovery.”
The German Central Bank (Bundesbank) also issued an opinion on the development of the German economy. According to it, Germany will slowly emerge from the recession, due to uncertainty over US trade policy. According to the Bundesbank’s semi-annual forecast, the economy will stagnate this year. In its December forecast, it still expected a slight increase of 0.2%. “The new US tariffs and uncertainty about future US policy will initially hinder economic growth,” explained Joachim Nagel, president of the German Central Bank. In 2027, the government’s massive planned spending on infrastructure and defense will strongly boost the economy.
Other economists also believe that the government’s multi-billion-euro fiscal package could have positive effects. “The German economy is benefiting from the ECB’s rate cuts and, soon, from the large fiscal package, although the increase in US tariffs is hindering the recovery,” says Jörg Krämer, chief economist at Commerzbank.
According to IMK economist Dullien, a slow acceleration of growth is expected in the coming months, mainly thanks to the measures announced by the government so far.
“Starting in July, the improved conditions for depreciation of expenditure should lead to an increase in investment demand. In addition, companies are likely to recover investments postponed at that time. Public investments financed by the special infrastructure fund should boost growth.” Positive economic signals came from the eurozone. According to data from the statistical office Eurostat, economic activity grew by 0.6% in the first quarter compared with the previous quarter. In the third estimate, growth was revised down significantly from 0.3% in the second estimate. Data on economic growth in Germany have also been revised. According to these figures, the German economy grew by 0.4% between January and March. Initially, growth of only 0.2% was announced. As the strongest economy in the 20-nation eurozone, the German economy is particularly important for the well-being of the currency area. (DW)