Germany's economics ministry acknowledged in its communique that growth momentum weakened in the second quarter of this year. Despite improving business forecasts, industrial production and incoming orders remain unstable. Foreign trade is dragging on growth, as exports -- particularly to the United States -- have fallen significantly.
The domestic economy is developing unevenly: falling retail turnover contrasts with an increase in new car registrations by private individuals and higher revenue in the restaurant sector. However, persistent geopolitical uncertainties and a weak labor market are dampening consumer sentiment among German households. Overall, the recovery in the second quarter failed to gain lasting momentum, partly due to fading front-loading effects and uncertainty surrounding US tariff policy.
Industrial production in May, adjusted for prices and seasonal factors, rose by 1.2% compared with the previous month. The production of industrial goods increased by 1.4%, and energy production rose significantly by 10.8%. Construction output, however, recorded a clear decline of 3.9%. In the same period, incoming orders in the manufacturing sector fell by 1.4%. Although industrial activity has developed positively since the beginning of the year, a renewed deterioration in the outlook for the manufacturing sector cannot be ruled out given the persistently high trade and geopolitical uncertainties.
Retail turnover, adjusted for prices and seasonal factors (excluding the automotive sector), fell by 0.9% in May compared with the previous month. In June, however, retail recorded a real turnover increase of 2.5% compared with May. New car registrations by private individuals rose by 2.0% in June, but in the more meaningful three-month comparison, the increase was only 0.4%. Leading indicators for consumption point to a slight recovery in the first quarter of 2025, but the current picture is mixed.
Inflation fell to 2.0% in June. Significant relief came from lower energy prices, and food price growth also slowed. Core inflation stood at 2.7%, slightly less than in May, reflecting reduced price pressure on goods and services. Over the remainder of the year, inflation is expected to stabilize at the current level.
At the end of the second quarter, there are no signs of a labor market recovery. In May, employment was unchanged, and unemployment rose by 11,000 in June, more than is typical for this time of year. Leading indicators do not signal an improvement in the employment situation in the third quarter. The number of corporate insolvencies in April 2025 rose by 6.6% compared with the previous month and by 11.5% compared with April 2024. Meanwhile, according to the IWH insolvency monitor for individuals and incorporated companies, June 2025 saw a decline of 3.9% relative to May, but a year-on-year increase of 22.6% compared with June 2024.
