German economy expected to contract by 0.3% this year, DIHK says

The German Chamber of Commerce and Industry (DIHK) forecasts a 0.3% contraction in the German economy for 2024, marking a third consecutive year of decline and the longest period of weakness in post-war history, though slightly improved from a prior 0.5% contraction forecast due to stronger-than-expected Q1 exports. Despite the U.S. being Germany's largest trading partner with 253 billion euros in goods traded in 2024, German exports are expected to decline by 2.5% in 2025, with a survey indicating more companies anticipate export declines than increases over the next 12 months.

Analysis

The German Chamber of Commerce and Industry (DIHK) has revised its 2024 economic forecast for Germany, projecting a 0.3% contraction. This marks an improvement from the earlier 0.5% decline forecast in February but still signals a third consecutive year of economic shrinkage—the longest period of weakness in the nation's post-war history. This modest upward revision is attributed to a stronger-than-anticipated first quarter, primarily driven by export and industry frontloading ahead of U.S. tariffs, a significant factor given the U.S. was Germany's largest trading partner in 2024 with 253 billion euros in two-way goods trade. Despite this temporary uplift, the DIHK forecasts a continued downturn in German exports, expecting a 2.5% decline in 2025, which would also mark a third consecutive year of contraction in this crucial sector. This negative export outlook is supported by a DIHK survey of 23,000 companies, revealing that 29% expect exports to fall in the next 12 months, while only 19% foresee an increase, aligning with the overall moderately negative sentiment and cautious tone identified in market signals.

Key Decisions for Investors

• Investors should exercise caution regarding German-centric investments due to the projected third consecutive year of economic contraction and persistent export weakness, despite a slightly improved near-term forecast.
• The Q1 economic outperformance, driven by temporary export frontloading, may not indicate a sustainable recovery, warranting vigilance for underlying vulnerabilities in Germany's export-oriented economy, especially with export declines anticipated for 2025.
• Consider re-evaluating exposure to German equities and sectors heavily reliant on exports and domestic demand, and monitor upcoming trade figures and leading economic indicators closely for further directional cues given the persistent recessionary risks.