The German economy narrowly avoided a recession at the beginning of the year, showing modest growth that exceeded expectations, largely driven by investments in construction and exports, according to preliminary data released on Tuesday.
Gross domestic product (GDP) in adjusted terms grew by 0.2% in the first quarter compared to the previous three months.
The data for the last quarter of the previous year was also revised, showing a contraction of 0.5% instead of the previously reported 0.3% slump. Last week, the German government raised its economic growth forecast for this year to 0.3%, up from the previous 0.2%, and lowered its inflation forecast by 0.4 percentage points.
Germany, as Europe’s largest economy, lagged behind its major euro zone counterparts last year due to factors such as high energy costs, weak global orders, and record-high interest rates. While inflation is expected to ease in the coming year, GDP growth is projected to remain modest, with an estimated growth rate of only 1.0% in 2025.
Private consumption is anticipated to be a significant driver of growth, supported by expected rises in real wages in a robust labor market. Data from the statistics office indicated that German retail sales increased by more than anticipated in March, rising by 1.8% month-on-month, indicating a consumption recovery at the quarter’s end, which bodes well for the overall economy.
Despite the sluggish economic growth, the impact on the labor market has been limited. The Federal Labour Office reported on Tuesday that the number of unemployed persons increased by 10,000 in seasonally adjusted terms, slightly higher than the 9,000 expected by analysts. The seasonally adjusted jobless rate remained stable at 5.9%.
Daniel Terzenbach from the Federal Labour Office noted, “Although the German economy has faced challenges for two years, the labor market remains robust,” during the data presentation. In April, there were 701,000 job openings, a decrease of 72,000 compared to the previous year, according to the Federal Labour Office.
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