FRANKFURT, Aug. 21 (Xinhua) -- The German economy may stagnate in the third quarter of 2025, the country's central bank Bundesbank warned on Thursday, citing U.S. policy uncertainty, weak global trade and sluggish orders.
German gross domestic product (GDP) contracted by 0.1 percent quarter-on-quarter in the second quarter of 2025, according to data released by the Federal Statistical Office (Destatis) at the end of July. In its monthly report, the Bundesbank said this weakness could extend into the third quarter.
The central bank attributed the second-quarter contraction to "fall-off effects" from U.S. tariffs, noting that industrial output dropped sharply in June and weighed heavily on the overall performance. Entering the third quarter, industrial production remains subdued, and the bank cautioned that the sector is "unlikely to provide any growth impetus."
At the same time, tariff disputes continue to create uncertainty. Although the United States and the European Union recently reached an agreement in principle, the Bundesbank said "uncertainty remains high given the outstanding issues and the volatile U.S. economic policy."
The report also highlighted the bleak outlook for global trade, weak order books and low capacity utilization, which are likely to weigh further on corporate investment. Private consumption edged up in the second quarter, but the bank warned that household spending may soften in the coming months due to a sluggish labor market and slowing wage growth.
Despite these headwinds, the Bundesbank now expects the German economy to grow slightly in 2025, revising up its June forecast of stagnation. The revision follows updated Destatis data released Thursday, which showed the economy grew slightly instead of shrinking in the final quarter of 2024. This provides a better starting point for the current year, giving the outlook for 2025 a somewhat brighter tone, the bank's economists said. ■
