Germany Q2 GDP Revised to 0.3% as Exports Mask Weak Demand

Germany's second-quarter growth was revised up on export strength, but weak investment and stagnant consumption point to a fragile domestic economy.

Germany's gross domestic product expanded 0.3% quarter-on-quarter in the three months through June, revised up from a 0.2% flash estimate, as goods exports rose 2.6% while machinery and equipment investment fell 1.4%.

"The German economy is maintaining the growth momentum seen at the start of the year," Ruth Brand, president of the Federal Statistical Office, said, explaining that strong exports led growth just as they did in the first quarter.

Exports of goods and services rose 2.0% quarter-on-quarter, with goods exports up 2.6%, while imports increased 1.5%. Gross fixed capital formation declined 0.2%, and final consumption expenditure was nearly flat at 0.1%. On the production side, gross value added rose 0.4%, with manufacturing up 0.9%. Year-on-year, price-adjusted GDP rose 1.0%, and first-quarter growth was revised up from 0.3% to 0.4%.

The upward revision beat the market consensus of 0.2% but still trailed the EU-wide growth rate of 0.5%. Spain led major European economies at 0.7%, while France and Italy each grew 0.2%. The United States expanded 0.4% quarter-on-quarter. The euro failed to gain on the data, with EUR/GBP trading near 0.8550 and testing weekly lows.

Export Strength vs. Domestic Weakness

The data reveal a widening gap between Germany's external and internal engines. The 2.6% jump in goods exports was likely helped by foreign firms stockpiling German products ahead of expected price rises and supply disruptions from the Iran War, according to Destatis. Meanwhile, the 1.4% contraction in machinery and equipment investment suggests elevated energy prices and prolonged geopolitical risk are dampening corporate capital spending.

The labor market is also softening. Approximately 45.7 million people were employed in production activities in the second quarter, a decline of 212,000 people, or 0.5%, compared with a year earlier. That trend may limit the resilience of household consumption, which rose just 0.1% in the quarter.

As part of its regular summer revision, the statistical office revised historical GDP data back to 2011. The 2024 growth rate was revised from a 0.5% contraction to 0.0%, while 2025 growth was left unchanged at 0.2%. Annual growth rates from 2011 through 2021 were revised upward by up to 0.1 percentage point, lifting cumulative GDP growth over that period by 0.8 percentage points.

Market Reaction and Forward Outlook

The euro's failure to rally on the upgraded data reflects investor preference for the pound's carry profile. ING analysts said sterling is "probably still enjoying some carry demand given it is one of the highest, volatility-adjusted currencies in G10," and judged that "EUR/GBP can probably hang around these 0.8550 levels for the time being."

The Bundesbank expects GDP to grow only slightly at best in the third quarter, citing record low water levels in the Rhine disrupting German industrial logistics and the unwinding of export growth accumulated so far this year. Germany's Economy Ministry, which cut its full-year growth forecast to 0.5% from 1% in April after energy prices spiked from the Iran War, noted this month that energy-intensive manufacturing is beginning to show signs of improvement, gaining an advantage over Asian competitors hit harder by the conflict. Flash purchasing managers' index data for August, released Aug. 21, confirmed accelerating growth in the manufacturing sector.

The upcoming IFO Business Climate Index for August, due from the CESifo Group, will offer the next read on business sentiment. If the improving PMI trend continues, growth could accelerate from the third quarter onward. But with the growth structure remaining heavily dependent on exports, external demand volatility and the Rhine logistics constraint pose the key downside risks.

This article is for informational purposes only and does not constitute investment advice.