Tariff impact is evident, Germany's economy contracted more than expected in the second quarter.

Germany's economy shrank more than expected in the second quarter, as the performance of German manufacturers plummeted significantly after the inventory surge from US companies dissipated. The German statistical office released on Friday that the GDP fell by 0.3% in the second quarter compared to the previous quarter, initially estimated to decline by 0.1%. Investment was a major drag, decreasing by 1.4%, and private consumption's role in supporting the economy was much lower than initially expected. The German statistical office stated in a declaration: "The performance of industrial production was particularly worse than initially expected." The extent of economic contraction in the German economy in the second quarter exceeded expectations. This economic contraction is a major setback for the largest economy in Europe and shatters expectations that the country could emerge from its economic slump following the Russia-Ukraine conflict. In the first quarter of 2025, Germany's GDP grew by 0.3%, partially due to US companies stocking up before tariffs took effect. Carsten Brzeski, Global Head of Macro at ING Group, stated: "The German economy experienced a reversal of the stocking-up effect and felt the first comprehensive impact of US tariffs. The German economy is stagnating and a more significant recovery may not happen until next year." In July of this year, the EU reached an agreement with the US, where most goods from the EU would be subject to a 15% tariff, which was strongly criticized by the German industrial sector. The German economy is also affected by weak global economic growth, geopolitical uncertainties, as well as long-standing issues such as aging workforce and excessive bureaucratic red tape. The German central bank warned in its monthly report on Thursday that GDP might not achieve growth again in the third quarter, with the most likely outcome being economic stagnation. Meanwhile, the German government's plans for a significant increase in defense and infrastructure spending have brought some optimism, with effects expected to be seen in 2026. Earlier this week, the German Composite Purchasing Managers' Index released by S&P Global showed that private sector activity unexpectedly accelerated in August, and manufacturing was close to ending a three-year slump.