Germany's economy expanded by 0.4 percent in the first quarter of 2025, 0.2 percent above earlier estimates. This marks the most substantial quarterly growth since the third quarter of 2022 and offers a modest sign of recovery. Manufacturing and exports led the rebound, bolstered by strong demand for pharmaceuticals and vehicles, possibly driven by pre-emptive buying amid US trade tensions. Household consumption also improved (0.5 percent), supported by warmer sentiment and rising wages, while public spending faltered due to temporary budget constraints.

Fixed investment grew by 0.9 percent, driven by gains in both machinery and construction, although year-over-year figures still reveal lingering weakness. Gross value added rose overall, with notable strength in ICT and hospitality, though finance and public services dragged down service sector growth. Employment slightly declined year-over-year, yet average working hours rose, keeping labour volume stable.

While exports surged quarter-over-quarter, annual comparisons showed a dip, revealing the fragility of Germany's external demand. Real income gains were partly offset by rising social contributions, nudging down household savings to 13 percent. Compared to peers, Germany outpaced the EU average but lagged in year-over-year terms.

Overall, the first quarter rebound is promising, but fragile, anchored more in short-term dynamics than structural revival. This latest update leaves the RPI at minus 4 and the RPI-P at 4, meaning that economic activities continue to stay within the consensus expectations for the German economy.

Growth expected modest at 0.2 percent in Q1 from Q4 and down 0.2 percent from a year ago.

Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. Following the release of the flash estimate about two weeks earlier, the second report incorporates additional data to provide a more accurate reading. It also contains details of the key GDP expenditure components and full national accounts.

GDP is the all-inclusive measure of economic activity. Investors need to closely track the economy because it usually dictates how investments will perform. Stock market Investors like to see healthy economic growth because robust business activity translates to higher corporate profits. The GDP report contains information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. These data, which follow the international classification system (SNA93), are readily comparable to other industrialized countries. GDP components such as consumer spending, business and residential investment illuminate the economy's undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.

Each financial market reacts differently to GDP data because of their focus. For example, equity market participants cheer healthy economic growth because it improves the corporate profit outlook while weak growth generally means anemic earnings. Equities generally drop on disappointing growth and climb on good growth prospects.

Bond or fixed income markets are contrarians. They prefer weak growth so that there is less of a chance of higher central bank interest rates and inflation. When GDP growth is poor or negative it indicates anemic or negative economic activity. Bond prices will rise and interest rates will fall. When growth is positive and good, interest rates will be higher and bond prices lower. Currency traders prefer healthy growth and higher interest rates. Both lead to increased demand for a local currency. However, inflationary pressures put pressure on a currency regardless of growth.