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Anticipated Economic Slump in the Spring quarter as per Bundesbank

German economy forecasted to experience growth and contraction in the initial half of 2023, according to Bundesbank.

adjusted growth outlook

Anticipated Economic Slump in the Spring quarter as per Bundesbank

Germany's economic powerhouse is expected to see a dip in the initial half of 2025, as per the Bundesbank's latest report [1]. The Central Bank anticipates a slight uptick in Q1, but a potential downturn in Q2, with the overall economic trend leaning towards weakness [1].

The influence of Donald Trump's tariff increases

The economic uncertainties stemming from Donald Trump's announced tariff increases are contributing to this anticipated slump [1]. The Bundesbank stressed the clouded near-term outlook for exports and industry due to the U.S. government's trade policy [1].

indecision regarding consumer prices

Predicting the impact of trade wars on consumer prices can be tricky. The Bundesbank acknowledged a high level of uncertainty regarding the inflation outlook, citing fluctuating energy prices and the strengthening euro against the U.S. dollar, which might result in cheaper imports [1]. As of March, the inflation rate had dropped to 2.2 percent [1].

growth prospects boosting in Q1

The Bundesbank points towards increased production in industry and construction coupled with improved order situations as probable causes for growth in the first quarter [1]. Service providers may also have expanded their activities, possibly backed by a slight uptick in consumer spending [1]. The Federal Statistical Office is due to publish a preliminary estimate for the GDP for Q1 2025 on Wednesday [1]. Recall that the German economy contracted by 0.2 percent in Q4 2024 [1]. Two consecutive quarters of negative growth are considered a technical recession [1].

nagel's thoughts on the economic situation

Bundesbank President Joachim Nagel recently shared with the Reuters news agency his expectations of stagnation, possibly even a slight recession, for 2025 [1]. He highlighted the high level of economic uncertainty, leading to the growth slowdown [1].

other key factors

  1. political instability: The absence of a stable government has contributed to economic uncertainty since November 2024 [1].
  2. military and infrastructure spending: The new government's plan to invest in defense and infrastructure may potentially stimulate growth [2]. However, planning and implementation delays may occur [2].
  3. capacity constraints: Sectors benefiting from increased government spending could lead to further price increases due to already existing full capacity constraints [2].
  4. structural issues: The German economy faces structural problems such as rising non-wage labor costs and demographic changes, which might not be resolved solely by government spending [2].

[1] Rene Wagner, Klaas Lauer, "Bundesbank expects German economy to stagnate in first half of 2025," Reuters, April 6, 2025.

[2] J. Nagel, personal communication with Reuters, April 7, 2025.

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  1. Despite adjusted growth outlook, the Federal Reserve is likely resisting inflation in Germany's economic powerhouse, as per the Bundesbank's latest report.
  2. Financial analysts indicate that the bundesbank anticipates a potential downturn in Q2 of 2025, possibly due to the influence of Donald Trump's tariff increases.
  3. Exports and industry in Germany are likely to face uncertainty regarding consumer prices, with the Bundesbank predicting a high level of uncertainty regarding the inflation outlook.
  4. The growth prospects in Q1 are boosting, as per the Bundesbank, partly due to increased production in industry and construction, and service providers may have expanded their activities.
German economy forecast to experience fluctuations during the initial half of the year, as per Bundesbank's predictions.

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