Germany's economy slipped back into contraction in the second quarter of 2025, with GDP falling by 0.3 percent from the previous quarter and 0.2 percent lower than the same period a year earlier (price and seasonally adjusted). Revised figures show that weaker-than-expected industrial output, coupled with a sharp downturn in construction (minus 3.7 percent), dragged growth into negative territory.

Household consumption offered little relief, edging up by just 0.1 percent, while government spending (0.8 percent) was the only notable domestic support. Capital formation suffered a significant setback, particularly in machinery (minus 1.9 percent) and construction investment (minus 2.1 percent). External trade compounded the weakness, as exports declined (minus 0.1 percent) and imports surged (1.6 percent).

On a yearly basis, household and government consumption provided modest growth (1.2 percent and 2.1 percent), yet this was outweighed by steep declines in investment and goods exports minus 3.6 percent). Employment remained stable at 46 million, but productivity gains were uneven, reflecting reduced hours worked. The savings ratio dropped to 9.7 percent as consumption grew faster than incomes.

Compared internationally, Germany's performance lagged behind Spain (0.7 percent), France (0.3 percent) and the US (0.7 percent), underlining its fragile recovery. Overall, the latest update demonstrate an economy weighed down by weak industry, lowering investment, and global trade headwinds, with consumption alone preventing a deeper downturn. This updates take the RPI to minus 25 and the RPI-P to minus 31, showing that economic activities are now behind expectations in Germany.

The consensus looks for German GDP down 0.1 percent in Q2 from Q1. Year on year GDP is expected up 0.4 percent.

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.