Germany’s Economic Contraction Spurs Reform Pledges Amid Weak Manufacturing Data

Germany's economy shrank 0.3% in Q2 2025—worse than the preliminary -0.1% estimate—as manufacturing momentum collapsed following a Trump-tariff-driven export surge earlier in the year. Household spending flatlined at 0.1% growth, with food and hospitality sectors particularly weak.

Chancellor Friedrich Merz's coalition faces mounting pressure to streamline bureaucracy and deliver structural reforms, with Health care and pensions flagged as priority areas. Government spending ROSE 0.8%, failing to offset declines in construction and business investment.

The Federal Statistical Office noted deteriorating net exports due to weaker global demand and ongoing U.S. trade barriers. SPD leader Lars Klingbeil insists the governing coalition retains capacity for decisive action, though markets remain skeptical.