Germany's economy delivered a surprising first-quarter boost, with GDP rising by 0.4% quarter-on-quarter, double the initial flash estimate of 0.2%, marking its strongest performance since Q3 2022. The upswing was driven by a front-loading of exports and industrial production in anticipation of tariffs announced by former US President Donald Trump.
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The detailed GDP data, released today, showed that while Germany's economy remained 0.2% lower year-on-year, momentum had returned, with net exports and private consumption emerging as the primary contributors to growth. Government spending and inventory reductions, however, acted as a drag.
According to ING's Global Head of Macro, Carsten Brzeski, 'The German economy had its best quarterly performance since the third quarter of 2022, and the reason for it seems to be Donald Trump.' The surge in March's industrial activity reflected market reactions to the tariff threat, with businesses rushing to ship goods before trade barriers intensified.
Despite the upbeat data, analysts warned against excessive optimism. 'Looking ahead, the first quarter performance will soon become a positive one-off,' Brzeski cautioned. He noted that the German economy remains vulnerable amid ongoing geopolitical shifts and internal uncertainty around the new government's policy direction.
While the government holds significant fiscal space for infrastructure and defence investment, 'the fiscal measures alone, impressive as they might be, will do very little to improve the economy's competitiveness,' Brzeski said. He emphasised that infrastructure investment, though vital, does not guarantee innovation or structural transformation.
On the bright side, 'we are finally seeing tentative signs of a turning inventory cycle, which normally bodes well for industrial production over the coming months,' offering a potential buffer against further shocks. However, the continued impact of tariffs, even during the current 90-day pause, alongside high uncertainty, may temper any sustained rebound.
In summary, Brzeski concluded: 'Today's numbers finally brought back an almost forgotten relic from the past: the German economy can still surprise to the upside.' Yet, he acknowledged that this recovery was 'clearly the result of one-offs and doesn't look sustainable (yet).'
As Europe's largest economy grapples with balancing short-term boosts and long-term strategy, the coming months will be crucial in determining whether this rebound evolves into lasting growth or fades as another fleeting statistical anomaly.
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