According to the Bundesbank, the German economy will not be able to free itself from its crisis in the third quarter either. The gross domestic product, adjusted for prices, is likely to have “at best stagnated” in the summer quarter, writes the central bank in its October monthly report. This means that the Bundesbank’s view is once again murkier: in September it had still considered slight economic growth to be possible.
The reasons for the pessimism are the weakness of the industry, the crisis in the auto industry and the trade policy of US President Donald Trump. “The industry continues to suffer not only from structural problems, but also from increased US tariffs,” said the Bundesbank. “Production, real sales and real exports of goods have recently declined.” This now also applies to incoming orders in industry, where demand from abroad has clouded over.
Industrial production fell in August after a strong July, particularly in the auto industry. While the recovery in construction is a long time coming, consumers are holding back on spending. The labor market, on the other hand, remains quite robust. The Bundesbank sees a glimmer of hope: economic data from the Ifo Institute indicate a somewhat more robust industrial economy at the end of the year.
At most, mini-growth is expected in 2025
The German economy is in a deep crisis. In the second quarter, gross domestic product shrank by 0.3 percent compared to the previous quarter. At the beginning of the year there was an increase of 0.3 percent – because deals had been brought forward out of fear of Trump’s tariff threats.
For the year as a whole, Europe’s largest economy could just miss its third year without growth: leading economists are expecting mini-growth. The German economy is expected to grow significantly in 2026, not least because of billions in spending on infrastructure and defense.
In the public sector, the federal bankers see the danger that the strained budget situation of many municipalities will worsen. The states are largely responsible for municipal finances and would have to allocate more money to the municipalities if strict consolidation requirements are not enough. In addition, municipal debts should be counted towards the credit limits of the respective state.