The struggling German economy grew by +0.4% in the first quarter, twice as much as economists had originally forecasted. Rising exports and higher consumer spending provided a boost to the Gross Domestic Product (GDP) compared to the previous quarter.
In particular, exports—such as cars and pharmaceuticals—supported the economy in the first quarter. Anticipatory effects in the ongoing trade conflict with the USA are likely to have contributed to the positive development. Exports increased by +3.2% compared to the previous quarter.
In addition, private consumer spending also rose by +0.5% compared to the previous quarter. With declining inflation and significantly increased wages in some sectors, many people have more money in their pockets. Investments in buildings (+0.5%) and equipment (+0.7%) also grew.
The sentiment among companies in Germany has also slightly improved. The ifo Business Climate Index rose to 87.5 points in May 2025, from 86.9 points in April. This was due to less skeptical expectations, while the current business situation was assessed somewhat worse. Overall, the recently sharply increased uncertainty among companies has slightly decreased.
The government spending ratio, which indicates the government’s influence on an economy, is calculated as the total government expenditure as a percentage of GDP. According to the International Monetary Fund (IMF), this was 49.5% in Germany in 2024, above the average of the G7 countries of 46.1% and the government spending ratio of other major economies, such as the United Kingdom (44.0%), the USA (37.6%), and China (32.9%).
The share of taxes and social security contributions in total labor costs for average earners was 47.9% for singles without children in Germany in 2024, according to the OECD. This places Germany in the second-worst position among the 38 OECD member states, after Belgium, and significantly above the OECD average of 34.9%, which affects Germany’s attractiveness as an investment location. In countries outside the EU, such as the United Kingdom (29.4%) or the USA (30.1%), the rate is significantly lower.
An assessment of Germany as a business location by international investors is shown in our study Business Destination Germany 2024. As part of the study, 350 CFOs of the largest German subsidiaries of international corporations from the most important investor countries were surveyed on how they assess Germany as a location. Since the study has already been published for the fourth time in a biennial rhythm, it also allows for trend statements.
Insights into global growth prospects, opportunities, and challenges are also provided by the KPMG Global Navigator.
Assessments of the economic situation, generative AI, ESG, and other current topics are also shown in our CEO Outlook 2024/25, for which 1,325 CEOs of large companies worldwide were surveyed, including 125 CEOs in Germany.
The latest forecasts of German economic research institutes and government organizations for the development of GDP in Germany recently ranged between -0.2% and +0.4% for the calendar year 2025: