Germany’s economy grew 0.2 percent in the first quarter of 2025, avoiding a recession after a contraction late last year, according to data from the federal statistics agency Destatis. The growth, driven by improved consumption and investment, was better than expected, offering a boost for incoming Chancellor Friedrich Merz.

However, economists cautioned the recovery may be short-lived, as US tariffs are expected to negatively impact growth later this year. “This should not be interpreted as the beginning of a sustainable recovery,” said Dirk Schumacher, chief economist at KfW.

Germany’s top trading partner, the US, imposed a 10 percent tariff on EU exports, with potential further levies causing uncertainty.

Inflation, unemployment up

Inflation eased slightly to 2.1 percent in April, while unemployment rose as companies announce job cuts amid the slowdown. Despite a modest recovery expected after two years of contraction, the government recently downgraded its growth forecast for 2025 to zero due to US tariffs.

Merz’s economic plans

Merz plans to boost the economy through increased public spending, tax cuts, and lower energy costs. However, economists warn that these measures, while significant, may not improve long-term competitiveness.