Real gross domestic product (GDP) was probably more or less stagnant in the second quarter, according to the Bundesbank’s latest Monthly Report. One reason for this was frontloading effects relating to exports and industrial production in anticipation of higher US tariffs in the first quarter. In addition, activity in the services sector probably expanded only slightly, partly because private consumption is likely to have provided less impetus. The construction sector is even expected to make a significantly negative contribution to growth.

Demand for industrial products remains weak

Domestic and foreign demand for German industrial products picked up somewhat but is still weak, the economists write. According to the report, business sentiment did improve in June. However, US tariff policy threatens to bring additional headwinds to German exporters in the short term. For example, US President Trump recently announced that additional tariffs of 30 % (in place of the baseline 10 % tariff introduced in April) on products imported from the EU will enter into force from 1 August 2025 if no agreement is reached before then. 

In the June Forecast for Germany, the Bundesbank had still assumed a tariff rate of 10 % for the baseline. If the newly announced tariff rate takes effect, it would thus represent a considerable downside risk to the economy, the authors warn.

Driven by the automotive industry, industrial output averaged over April and May rose slightly from the previous quarter. It is thus heading towards the second consecutive quarter of growth, after having contracted for seven quarters, the economists note. Not all sectors saw an improvement, however. Production of intermediate goods, such as chemical products or fabricated metal products, fell short of the first-quarter average in the first two months of the second quarter. 

Labour market still stable

Employment remained virtually unchanged for the third month in a row. Leading indicators were also weak. In the manufacturing sector, plans to reduce staff predominated. After seasonal adjustment, unemployment rose in June by around 11,000 persons to 2.97 million. This left the unemployment rate unchanged at 6.3 %. The outlook for unemployment improved only slightly. In June, the IAB unemployment barometer rose for the third consecutive month. However, it is still in negative territory, suggesting that unemployment will rise in the next three months, the Monthly Report says.

Inflation down slightly to 2.0 % in June

The Harmonised Index of Consumer Prices rose again slightly by a seasonally adjusted 0.1 % on the month. Year on year, however, headline inflation came down slightly overall, from 2.1 % in May to 2.0 % in June. Core inflation excluding energy and food likewise declined, dropping from 2.7 % to 2.5 %. The Bundesbank expects the inflation rate to move around the 2 % mark over the coming months.