Economic growth stabilizes in Q2

Second consecutive quarter of GDP growth for the first time in three years: Preliminary estimates indicate that the economy expanded 0.1% on a seasonally adjusted quarter-on-quarter basis in Q2, matching Q1’s pace. This marks the first time in three years that two consecutive quarters register sequential growth. On an annual basis, GDP rebounded in Q2, rising 0.1% year on year after a 0.4% fall in Q1, the first year-on-year growth since Q1 2023.

Private spending and investment gains outweigh fiscal drag: Sequential growth in Q2 was mainly driven by a 0.3% rise in household consumption (Q1: +0.1% s.a. qoq) and a 0.3% rebound in fixed investment (Q1: -0.2% s.a. qoq), both likely supported by lower interest rates. In contrast, public consumption declined 0.2% (Q1: +2.3% s.a. qoq) due to fiscal consolidation. On the external front, net exports made a negative contribution to overall GDP. Exports of goods and services stagnated for the second consecutive quarter, as Germany’s industry—closely linked to Austria’s—struggled during Q2, weighing on manufactured exports. Meanwhile, imports of goods and services rebounded, growing 0.9% in Q2 (Q1: -1.1% s.a. qoq).

Economy to remain subdued in 2025: Our panelists see GDP growth near Q2’s weak quarterly pace through year-end. In turn, our Consensus is for GDP to stagnate in 2025 as a whole following two years of contraction. Exports will likely fall for a third consecutive year due to Germany’s weak industry and U.S. tariffs. In addition, public spending growth is set to slow as the government faces EU pressure to rein in the fiscal deficit. That said, lower interest rates should boost private consumption growth. A downside risk is a weaker-than-expected German economy.

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