Increased exports expected in response to predicted Trump tariffs, boosting economy beyond initial projections - Increased exports predicted in response to Trump tariffs: economy exhibits unexpected resilience
German Economy Shows Surprising Growth Amid Anticipated Trump Tariffs
Germany's economy is exhibiting unexpected growth, with the manufacturing and export sectors performing better than initially anticipated, according to the president of the Federal Statistical Office, Ruth Brand. Exports surged by 3.2 percent compared to the fourth quarter of 2024, an uptick primarily driven by strong increases in pharmaceutical and automotive products.
The sustained trade conflict with the U.S. may have played a role in this positive development, as American importers likely accelerated purchasing to avoid potential high tariffs. Trump had announced a "liberation day" on April 2, initially planning to impose heavy tariffs on trading partners worldwide. Although several tariffs were reduced for a 90-day period, a base tariff of 10 percent remains, affecting EU countries, among others. As of April 1, a 25 percent tariff also came into effect for automotive deliveries to the U.S.
Private consumption and investment, including construction and equipment, also showed improvements compared to previous quarters. Germany's gross domestic product grew by 0.6 percent compared to the preceding quarter, following a series of four consecutive declines.
The statistical office noted that both the construction industry (up 0.9 percent) and the manufacturing sector (up 1.0 percent) saw improvements after a downturn in previous quarters. Key industries with positive developments include the chemical, mechanical engineering, and automotive sectors.
However, analysts such as Carsten Brzeski of ING Bank predict that this first-quarter growth will most likely remain an isolated case. According to Brzeski, the German economy lies somewhere between two competing factors - a new government with limited ambition for structural reforms yet unprecedented financial leeway for infrastructure and defense investments, and "fundamental shifts in trade and geopolitics."
The ongoing tariff standoff between the U.S. and Germany will likely leave a lasting impact on the German economy, Brzeski noted. Even during the 90-day reduction of tariffs, they were higher than at the beginning of the year, and there are also secondary effects due to U.S. surcharges, such as high uncertainty.
The German Savings Banks Association (BVR) does not yet see an economic recovery, with Andreas Bley, the BVR's chief economist, predicting that the economic downturn will continue in the spring and summer. and may only pick up at the end of the year, provided prompt economic policy impulses from the federal government.
According to the United Nations, Trump's tariffs and trade tensions are likely to reduce global economic growth by 0.4 percent in both 2025 and 2026[2]. Germany, being the largest trading partner of the U.S. in 2024, remains particularly susceptible to these developments[2].
Measures such as improved depreciation conditions for companies and the implementation of the financial package of the new federal government could offer opportunities for sectors like automotive and pharmaceuticals to adapt and grow[2]. Germany is also focusing on strengthening European trade agreements to mitigate the impact of U.S. tariffs[2].
- The uptick in the German economy's growth might be partially attributed to the surge in employment in the manufacturing and export sectors, as companies may be accelerating hiring to meet increased demands before potential tariffs take effect.
- Despite the unexpected growth in the first quarter, ongoing trade tensions between Germany and the U.S., particularly the tariffs on automotive deliveries, could negatively impact employment policies in the automotive industry, potentially leading to job losses if company profits are affected.
