Economic output in Germany is likely to have increased slightly in the first quarter of 2025, but could suffer a setback in the second quarter. In the first quarter of 2025, real gross domestic product (GDP) is likely to have risen slightly after seasonal adjustment, 1 following a decline in the previous quarter. This is suggested by the recent increase in industrial and construction output. Service providers are also likely to have expanded their activity somewhat, possibly buoyed by slightly higher private consumption. Real sales in the retail trade, for instance, continued to rise in January and February. However, the underlying cyclical trend remains weak overall. While demand in the construction industry has already recovered from a very depressed level, domestic and foreign demand for German industrial products has remained sluggish. Low capacity utilisation in industry is weighing on firms’ propensity to invest. The labour market is weakening and dampening consumer sentiment. In March, there were positive signals from business sentiment. The ifo business climate index rose markedly and on a broad front. Business expectations, in particular, brightened. In addition, the S&P Global Purchasing Managers’ Index for March was above the expansion threshold in both the services and manufacturing sectors. However, the much more expansionary future fiscal policy stance, which is on the cards following the amendments to Germany’s Basic Law, is likely to have been a major factor in this. Yet a certain time lag is expected before fiscal policy has any major supporting effect on economic output. In the short term, meanwhile, there is a risk of additional headwind for the export industry as a result of US tariff policy. The recent developments and the resulting strong responses in the financial markets were not yet reflected in the March sentiment indicators. The S&P Global Purchasing Managers’ Index fell markedly in April. 2 From today’s perspective, economic output is expected, overall, to decline again in the second quarter. 

Averaged across the first two months of the current year, industrial output rose slightly on the quarter. After seasonal adjustment, industrial output in February was down slightly on the month. Averaged across January and February, however, output was slightly higher than the weak level of the fourth quarter of 2024. This growth was driven by fairly heterogeneous developments in the individual sectors. Production of intermediate goods was somewhat higher than in the previous quarter, like output overall. However, production of chemicals rose sharply, while the metal-working sector remained significantly below the average of the preceding quarter. Production of consumer goods increased strongly on the quarter. By contrast, on an average of January and February, production of capital goods was slightly down. This is also true of motor vehicle production, which failed to increase any further in February. In January, this sector had seen a positive countermovement following a very weak December. However, the number of passenger cars manufactured, as reported by the German Association of the Automotive Industry for March, suggests that the quarterly result for the automotive sector will improve slightly. 

Looking at the underlying trend, demand for industrial products is merely stagnating at a low level. In February, industrial new orders remained at the low level of the preceding month. Averaged across the first two months, they therefore fell noticeably short of the previous quarter’s level. This applies to both orders from abroad and from within Germany. Last year’s slight recovery tendencies thus suffered a setback. One factor in this was that the inflow of large orders, of which a large volume had been received previously, weakened. However, the core measure of new orders – in other words, excluding volatile large orders – also declined slightly. The underlying trend consequently exhibits only a sideways movement at a weak level. Although demand from abroad for German industrial goods was weak overall, price-adjusted goods exports rose significantly in February and were also distinctly higher than in the previous quarter when averaged across the first two months of the year. Strong stimuli came from exports to the United States. Anticipatory effects owing to the US administration’s tariff announcements may have played a role here. However, this is likely to lead to corresponding setbacks in the second quarter, provided that the additional reciprocal tariffs over and above the base tariff rate of 10%, which have been suspended for 90 days, do not result in further anticipatory effects. Overall, the short-term outlook for export business and industry remains gloomy given the US administration’s tariff policy.

Construction output fell sharply in February compared with the previous month, but averaged across the first two months of the year was well above the fourth quarter of 2024. The increase in the first two months of the first quarter was driven exclusively by the finishing trades. By contrast, February’s output in building construction actually fell to its lowest level since February 2018. Civil engineering continued to significantly outperform building construction, but here, too, output fell somewhat in the first two months of the year compared with the previous quarter. The high output in January, which was attributable to the weather, was followed by a weak February.

However, the improved order situation of recent months suggests that the sector may have bottomed out. New orders in civil engineering consistently trended upwards over the past year. In recent months building construction, too, has started to see initial positive tendencies. Furthermore, building permits for housing construction rose slightly in January and February and were, on average, well above the previous quarter, in which they had already increased sharply. The stabilisation in the housing market, which was already evident last year in house prices and loans for house purchase as monetary policy become less restrictive, is thus also visible in the first leading indicators of new construction activity. 3 However, it is likely to be some time before there is a sustained recovery in construction output. In the short term, demand for housing construction could be dampened by the renewed marked rise in mortgage rates on offer since the beginning of the year. There will probably be a certain time lag before the targeted infrastructure investment from the Federal Government’s new special fund leads to more impetus in the construction sector, and this will likely mainly affect civil engineering. Overall, the short-term outlook for construction is therefore still fairly subdued.

Employment fell slightly in February, as it had at the beginning of the year. After seasonal adjustment, around 10,000 fewer people were in employment than in January. The reduction in employment – which is moderate given the economic and structural challenges – was mainly driven by a decline in the number of self-employed persons, while the number of employees remained virtually unchanged. The number of persons working exclusively in low-paid part-time jobs stabilised during the reporting period, following a decline in the fourth quarter. By contrast, the latest extrapolation – albeit relating to January – shows a significant fall in employment subject to social security contributions. According to the initial estimate, a particularly large number of jobs were lost in manufacturing in January. Employment subject to social security contributions also fell markedly in temporary agency work. Agencies frequently supply workers to industry and have been cutting jobs for almost three years. The pronounced dichotomy between the economic sectors continued. Some services sectors continued to hire, especially healthcare and long-term care as well as energy suppliers. Seasonal fluctuations aside, short-time work remained at its only slightly elevated level. Given that the problems enterprises are facing are more structural in nature, massive use of this instrument is not expected.

Leading indicators of employment do not point to a rapid recovery in the labour market. The ifo employment barometer, which reflects staff planning for the industrial sector over the next three months, fell again in March and is deep in negative territory. Plans to reduce staff predominate. The manufacturing and trade sectors remain most affected. The IAB employment barometer – which has a stronger focus on the economy as a whole – remained in neutral territory. It shows that overall employment is likely to remain broadly stable. Newly reported job vacancies stabilised at the low level they had reached. The hiring rate is likely to remain low. In particular, the likelihood of moving out of unemployment and into employment remains very low. 

Unemployment rose more sharply in March than the average of the preceding months. After seasonal adjustment, there were 2.92 million people registered as unemployed, around 26,000 more than in February. The unemployment rate went up by 0.1 percentage point to 6.3%. The number of underemployed persons reported by the Federal Employment Agency, which includes persons in active labour market measures, increased less significantly. This means that at least part of the comparatively strong increase is likely attributable to a smaller number of measures designed to relieve the labour market or integration and language courses. Nonetheless, the risk of moving from employment into unemployment is slowly growing. Taken in isolation, this contributes to rising unemployment. However, the probability of dismissal still remains fairly low in a long-term comparison. The IAB unemployment barometer continued to fall in March and is deep in negative territory, which suggests that unemployment will rise over the next three months. 

During the period under review, energy commodity prices fell markedly across the board. This was mainly due to concerns about demand as a result of the latest tariff announcements by the US administration. As this report went to press, a barrel of Brent crude oil cost US$70, around 9% less than as recently as February. This was partly due to the decision by some OPEC countries to expand production more strongly than previously announced. Most recently, gas in Europe cost €35 per megawatt hour and therefore roughly one-third less than in February. Other commodity prices also fell markedly during the period under review.

The decline in energy commodity prices has so far been only partially evident at the upstream stages of the economy. After having risen sharply at the beginning of the year, import prices increased only slightly on the month in February. Both headline inflation and inflation excluding energy eased. Looking at domestic industrial sales, for which data for March are already available, prices fell markedly overall, driven by a sharp drop in energy prices. Prices excluding energy edged up slightly. Compared with the previous year, prices for imports were around 3.5% higher, whereas prices for domestic industrial sales were marginally lower.

The inflation rate fell again in March. The Harmonised Index of Consumer Prices (HICP) increased in March by a seasonally adjusted 0.2% on the month, after rising 0.3% in February. Energy prices fell markedly as a result of lower oil prices and the appreciation of the euro against the US dollar. Food price inflation also weakened. In addition, services price inflation was less pronounced than in the preceding months. However, this was mainly due to falling prices for travel. Inflation remained perceptible for the less volatile services components. Prices of non-energy industrial goods rose more strongly again than the long-term average. This contrasts with a drop in prices in the last two months. Annual headline inflation dropped significantly to 2.3%. 4 Core inflation excluding energy and food fell below 3% for the first time in some time, hitting 2.8%, down from 3.1%.

The inflation outlook is currently characterised by particular uncertainty. Prices on the energy markets have tended to decline recently, amid high volatility, and the euro has tended to appreciate against the US dollar. Based on the oil price path derived from forward prices and on the US dollar/euro exchange rate as this report went to press, the inflation rate is expected to be even somewhat lower in the near future.

German government debt rose by €57 billion to €2.69 trillion in 2024. 5 Central government debt increased by €36 billion. Debt accrued by state and local governments went up by €15 billion and €14 billion, respectively, with debt between sub-sectors of government also rising. As this is factored out (consolidated) in general government calculations, the total debt level rose less than the aggregate debt of the individual levels. 

At 62.5%, the German government debt ratio was somewhat lower in 2024 than the year before. The 0.4 percentage point decline in the debt ratio is due to growth in nominal GDP (in the denominator). Taken in isolation, this reduced the debt ratio by 1.8 percentage points and outweighed the effect of the increased debt.

The €57 billion increase in debt was significantly lower than the general government Maastricht deficit (€119 billion). The main reason for this was that Germany financed a large part of its deficit by drawing on available bank deposits. In addition, central government was able to limit its borrowing because it was receiving repayments on assistance loans previously granted (during the coronavirus pandemic and to support the energy sector). Such repayments do not alter the Maastricht deficit (financial transactions), but they reduce the new debt needed to finance it. Mirroring this, central government had taken out debt in previous years to finance lending. This raised the debt level without affecting the deficit.

Germany also participates in borrowing operations at the EU level, which are not reflected in its Maastricht debt. This joint debt of the EU Member States increased further in 2024. This was mainly due to the fact that the EU stepped up its borrowing to finance grants from the NextGenerationEU (NGEU) off-budget entity. In addition, joint loans (macro-financial assistance) to Ukraine played a growing role.

To comprehensively analyse national government finances, joint European debt needs to be considered on top of the national Maastricht debt discussed above. This is because the Member States have to service both joint debt and national debt and raise the necessary funds to do so. As things stand, they are set to pay higher contributions to the EU budget for this purpose, and these contributions are currently based on their shares in EU GNI. The Bundesbank therefore apportions joint debt to Germany in the amount of its share in EU GNI. 

The Bundesbank uses the debt of EU institutions consolidated against claims on individual Member States as a measure of the joint burdens. 6 This includes, in particular, debt for NGEU grants and for loans to non-EU countries (macro-financial assistance). By contrast, not included is debt that the EU incurs and passes on as loans to individual Member States, such as NGEU loans or loans from the European Stability Mechanism (ESM). This means that these loans only increase the national debt level of the borrowing Member States that also service the debt.

Consolidated EU debt at the end of 2024 was put at €282 billion, or just under 1.6% of EU GNI (see Chart 1.5). 7 This includes €257 billion in loans for NGEU grants, €50 billion in macro-financial assistance and €45 billion in loans for NGEU payments that have not yet been disbursed. The sum of these debts (€352 billion) is reduced by a negative residual item. This mainly comprises bonds held by the ESM and the Single Resolution Fund (SRF) as well as deposits that the European Commission holds directly with Member States. As these claims are not offset by liabilities, they lower consolidated EU debt. There is no information publicly available on the size of the residual item. The Bundesbank’s estimate therefore assumes that the residual item amounted to €70 billion in 2024, unchanged from the previous year. Its actual level can only be determined using Eurostat’s EU debt figures for 2024.

Compared with the previous year, consolidated EU debt was therefore up by €113 billion in 2024. Of this, €97 billion is attributable to borrowing for NGEU grants and NGEU payments that have not yet been disbursed. In addition, further joint European loans of around €18 billion were issued to Ukraine (macro-financial assistance). 

Germany’s share in consolidated EU debt was estimated to be €70 billion in 2024, or 1.6% of German GDP (see Chart 1.6). 8 Together with national debt (62.5% of GDP), this results in a broad debt ratio of 64.1%. This allocation is based on Germany’s current share in EU GNI, which is 25%. Allocated EU debt has increased since 2021 as a result of borrowing for NGEU grants. This means that the broad German debt ratio fell less sharply than the Maastricht ratio between 2021 and 2024. Up to the end of 2026, Germany’s share in consolidated EU debt is expected to continue rising by up to 0.8 percentage point as a result of further borrowing for NGEU grants. It could then amount to around €105 billion if Germany’s GNI share remains unchanged. 

Local governments (core budgets and off-budget entities) closed 2024 far worse off, recording a very large deficit. This rose from €6½ billion (2023) to €25 billion. In view of economic activity being subdued, growth in major revenue items was weak. At the same time, spending pressures were broad-based and high. The previously high inflation rates are also likely to have had a lagged effect. Due to a statistical break, the revenue and expenditure developments of local governments in 2024 are of only limited informational value (see the supplementary information below). 

On the revenue side, growth in both taxes and general purpose grants from state governments was weak. Local government tax revenue rose by only 1½%. The main reason for this was that the major revenue item local business tax hardly increased (+½%). However, the level of tax revenue relative to economic output remained comparatively high. At 2%, growth in general purpose grants from state governments was also weak. 

There was strong expenditure growth in all major areas. This could also be observed for the core budgets, which were not affected by the statistical reclassification. In the case of the major expenditure item personnel expenditure, this was due primarily to the strong increase in negotiated pay rates effective from March 2024. Growth in social benefits spending was likewise strong. Reasons for this included higher benefit rates, as well as cost increases at facilities. Other operating expenditure and fixed asset formation also rose significantly in the core budgets. In particular, there was another marked surge in interest expenditure.

Local government debt rose sharply. Debt to the non-public sector went up by €15 billion to €169 billion. 9 Rhineland-Palatinate’s partial debt relief programme kept this in check. The state had assumed cash advances of €3 billion from its local governments. 10 Excluding Rhineland-Palatinate, local government cash advances increased by €5 billion. Half of this amount was attributable to local governments in North Rhine-Westphalia. At €1,200 per capita, its cash advances as a state average were the highest. 11

The increase in debt was significantly lower than that in the deficit. The difference of around €10 billion can be attributed in part to the debt relief programme in Rhineland-Palatinate. Generally speaking, local governments have the option of releasing reserves (cash) to finance a deficit. However, use of this type of financing remained tightly limited last year, as evidenced by the consolidated reports on revenue and expenditure. This means that a large part of the observed deviation between deficit and debt ultimately remains unexplained. 

Local government finances will remain strained this year. Although the deficit is expected to shrink, it is difficult to gauge by how much. Somewhat stronger growth in local government tax revenue is now anticipated. 12 In view of the lower increases in negotiated pay rates of April 2025, personnel expenditure growth is also likely to be significantly weaker than in 2024. 13 Beyond that, the after-effects of high inflation rates on growth in local government expenditure should also have come to an end. In addition, local governments are subject to relatively tight fiscal rules that appear to be difficult to reconcile with persisting high deficits. The expectation would thus be that local governments will be more frugal in areas of expenditure that they can directly influence. In the short term, this would primarily affect investment and other operating expenditure. Moreover, local governments can further increase their revenue by raising their multipliers for real estate and local business tax. However, more comprehensive assessments of the situation are not yet available. 

State governments play a key role in ensuring that the finances of their local governments are sound. First, they are responsible for budgetary surveillance of local governments and have extensive powers of intervention. They therefore need to ensure that local governments prepare their budgets in line with the tight legal requirements. Second, they are required to ensure that their local governments have adequate funding. All in all, they bear much of the responsibility for avoiding structural budget imbalances. 14 The greater scope that state governments have for new borrowing will make it easier to provide additional funds to local governments. However, loans from the Infrastructure Fund are intended to finance additional projects, not to plug budget holes. Otherwise, these fund loans would not achieve the actual objective of improving local government infrastructure. 

CDU, CSU, SPD (2025), Verantwortung für Deutschland, Koalitionsvertrag zwischen CDU, CSU und SPD, 21. Legislaturperiode , 9 April 2025.

Deutsche Bundesbank (2025a), House prices in Germany in 2024 , Monthly Report, February 2025.

Deutsche Bundesbank (2025b), German general government debt up in 2024 by €57 billion to €2.7 trillion, debt ratio down from 62.9% to 62.5% , press release of 31 March 2025.

Deutsche Bundesbank (2024), Public finances , Monthly Report, April 2024. 

Deutsche Bundesbank (2021), Local government finances: how cash advances can be limited and budget imbalances avoided , Monthly Report, June 2021.

Deutsche Bundesbank (2018), Maastricht debt: methodological principles, compilation and development in Germany , Monthly Report, April 2018.

European Commission (2025), Half-yearly report on the implementation of borrowing, debt management and related lending operations pursuant to Article 13 of Commission Implementing Decision C(2023)8010 , 12 March 2025.

Eurostat (2013), Decision of Eurostat on deficit and debt – Statistical classification of the European Stability Mechanism , 31 January 2013.

Federal Ministry of the Interior and Community (2025), Collective agreement concluded for some 2.6 million federal and local public service employees: salaries to increase by 5.8 per cent in two stages , press release of 6 April 2025.

Federal Statistical Office (2025), Öffentliche Schulden im 4. Quartal 2024 um 2,6 % höher als Ende 2023 , press release no 116 of 26 March 2025.

Federal Statistical Office (2024), Hintergrundpapier zur Generalrevision 2024 der Volkswirtschaftlichen Gesamtrechnungen für Deutschland , 27 August 2024.

Ministry of Finance of the State of Rhineland-Palatinate (2024), Partnership zur Entschuldung der Kommunen in Rheinland-Pfalz (PEK-RP) .

Schmidt, P., N. Heil, D. Schmidt and J. Kaiser (2017), Die Abgrenzung des Staatssektors in den Volkswirtschaftlichen Gesamtrechnungen , WISTA – Wirtschaft und Statistik, 1/2017.