Germany’s Economic Outlook Shows Tentative Signs of Stabilization

Germany's economy may return to growth in Q4 2025 as U.S. tariff pressures ease, according to Bundesbank's monthly report. After a volatile start to the year marked by export fluctuations, the central bank anticipates stabilization in industrial output and exports.

Services sectors are expected to support economic activity, though not necessarily consumer-facing industries. The report suggests overall output could show marginal improvement following two consecutive years of contraction and a flat third quarter.

Chancellor Friedrich Merz's massive fiscal stimulus—directed toward defense and infrastructure—won't impact construction or investment until 2026. Meanwhile, Germany struggles to capitalize on global growth due to persistent competitiveness challenges.

Labor market weakness continues to constrain private consumption, despite selective hiring in energy transition and demographic-related sectors. The European Central Bank monitors these developments closely for wage growth implications.