German economy leaps on export surge, outperforms estimates

Investing.com -- German economy demonstrated a robust performance in the first quarter of the year, driven by a significant increase in exports and industrial production, according to data on Friday.

The detailed Gross Domestic Product (GDP) data released surpassed the initial flash estimate, revealing a 0.4% growth quarter-on-quarter, a marked improvement from the -0.2% contraction in the fourth quarter of the previous year and doubling the initial estimate of 0.2% growth.

Despite this uptick, the year-on-year comparison still shows a slight decrease of 0.2%.

The first-quarter results marked the strongest performance for Germany since the third quarter of 2022. The surge is largely attributed to the anticipation of new U.S. tariffs, which prompted a wave of export and production frontloading in March.

While net exports and private consumption were the main drivers of this growth, government spending and inventory levels had a dampening effect.

Looking forward, the positive momentum from the first quarter is not expected to sustain. The German economy is currently navigating through the challenges posed by a new government’s lack of ambitious structural reforms and the ongoing adjustments in global trade and geopolitics, including the impact of U.S. tariffs.

Analysts from ING suggest that in the short term, the negative factors are likely to outweigh the positives, despite some early signs of an improving inventory cycle that could bolster industrial production in the coming months.

The recent tariff increases, despite a 90-day suspension, have already had both direct and indirect adverse effects on the economy, including reduced confidence and persistent uncertainty.

However, there is a more optimistic outlook for the long term. Investments in infrastructure, if executed effectively, could lead to a cyclical upswing.

Nevertheless, ING analysts caution that fiscal measures, no matter how substantial, are unlikely to enhance the economy’s competitiveness on their own. Infrastructure is crucial, but it does not inherently foster innovation, sector transformation, or new growth opportunities.

The coming months will be telling of the new government’s capacity to initiate a sustainable economic rebound beyond temporary cyclical factors.

The latest GDP figures have reintroduced a sense of optimism regarding the German economy’s potential for positive surprises.

Although the first quarter’s growth appears to be driven by one-time factors and may not be sustainable as of yet, it suggests that future growth forecast revisions may trend upward.