Germany skirts recession but unemployment rises

Germany edged out of recession with 0.2 % growth in the first quarter, but the recovery looked shaky as unemployment climbed to its highest level since the pandemic and looming U.S. tariffs threatened to stall momentum.

Germany’s economy eked out 0.2 % growth in the first quarter, breaking a run of two straight contractions, but fresh labour-market data and looming U.S. tariffs highlight the fragility of the upturn.

Preliminary figures from the statistics office on Wednesday showed GDP rising exactly as forecast, buoyed by consumer spending and stronger investment after a 0.2 % slide at the end of 2024. “Any positive number is welcome, but the increase is far too small to end Germany’s long stagnation,” said ING economist Carsten Brzeski.

Headline inflation eased to 2.2 % in April, near expectations and adding weight to calls for further European Central Bank rate cuts after June’s trim to 2.25 %. Core inflation, however, quickened to 2.9 % from 2.6 %, underscoring sticky domestic price pressures.

Despite the GDP uptick, the number of jobless Germans rose again in April and the unemployment rate hit its highest level since the pandemic. Deutsche Bank economist Marc Schattenberg blamed tariff uncertainty for sapping hiring, especially in export-focused manufacturing.

Economists fear the rebound could fizzle as higher U.S. duties on EU goods dampen orders later this year. The Ifo Institute warns output may shrink again by summer; JP Morgan says continued weakness could mark a third consecutive year of contraction—unprecedented for a G7 economy.

Retail sales, which had looked brighter earlier in the quarter, slipped 0.2 % in March, while import prices climbed, hinting at renewed inflation pressures. Corporate sentiment is also under strain: Mercedes-Benz withdrew its earnings outlook and Volkswagen flagged profits at the lower end of its guidance.

A centre-right coalition due to take office next week faces an urgent task: reviving Europe’s largest economy by restoring business confidence and unlocking consumer spending.

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