Germany’s economy shrank more than first reported in the second quarter, as its once-mighty manufacturers struggled under the weight of US tariffs, the latest chapter in the country’s slow-motion decline from “export powerhouse” to Europe’s growth laggard.
GDP contracted by 0.3% quarter-on-quarter, revising down its earlier -0.1% estimate. Investment fell off a cliff, down 1.4%, while consumers, allegedly the saviours of the post-industrial age, offered far less support than policymakers had optimistically assumed.

The setback dashes the hopeful narrative that Europe’s largest economy might finally be shaking off the two-year recession triggered by Russia’s war in Ukraine. Growth in the first quarter, it turns out, was flattered by a pre-tariff rush of exports to the United States. The economy experienced a reversal of the front-loading effect and the first full-blown impact of US tariffs. Germany has become too complacent in its stagnation, and a real recovery could be at least a year away.

In July, the European Union dutifully struck a deal with President Donald Trump, which will slap most shipments from the bloc with a 15% levy. German industry, unsurprisingly, has not been applauding. Yet Berlin, still chained to its mercantilist reflexes, had little leverage left to resist.
The malaise runs deeper. A cocktail of weak global demand, geopolitical uncertainty, a rapidly ageing workforce and suffocating red tape continues to choke productivity. Even the Bundesbank admitted on Thursday that GDP is likely to flatline again in the third quarter, with “stagnation” becoming the polite synonym for “recession on repeat.”
Economy Minister Katherina Reiche dutifully called for “bold reforms”, more flexible working hours, lighter labour costs, fewer bureaucratic hurdles and cheaper energy. In other words: the same policy prescriptions Germany has been promising, but not delivering, for two decades.

Optimists point to a future boost from defence and infrastructure spending, though those effects are unlikely to materialise before 2026. In the meantime, S&P Global’s PMI survey showed a surprise flicker of activity in August, as the prolonged manufacturing slump edged closer to its trough.
The bigger picture remains unchanged: Germany is stumbling from one revision to the next, caught between Trump’s tariffs abroad and its own inertia at home.
For now, the so-called European growth engine looks more like a car permanently stuck in second gear, lurching forward briefly, only to stall as soon as the road turns uphill.