The Federal Statistical Office also reported a notable decline in the savings ratio, reflecting ongoing increases in nominal and real wages in Q1 – though these were somewhat dampened by the expiry of inflation compensation bonuses. As in previous quarters, wage growth for lower-income earners was significantly stronger (7.2% year-on-year) than for the overall economy (3.6%).

Given the persistent high uncertainty about further US tariff policies, current economic sentiment indicators remain mixed: while the ifo Business Climate Index showed a marked recovery in May, particularly in manufacturing, and ZEW expectations rose significantly, the S&P Global Purchasing Managers’ Index (PMI) Composite for Germany fell below the 50-point threshold, indicating a slowdown. Consumer sentiment measured by the GfK Consumer Climate and HDE Retail Climate improved further in June from a low level, and the ifo Retail Business Climate also improved noticeably in May. Together with rising real wages, these signals point to a sustained recovery in private consumption this quarter.
However, externally oriented sectors remain affected by the threat of tariff escalation, which – along with the fading pull-forward effects – is reflected in the recent decline in foreign demand from outside the euro area, falling goods exports, a slowdown in industrial production in April, and highly volatile ifo export expectations. While some short-term pull-forward effects may still occur, medium-term rebound effects are likely. Despite a promising start to the year, the economic outlook remains cautious amid uncertainties around US trade policy announcements and decisions, and another slowdown of the German economy with ongoing volatility cannot be excluded in the coming months.

Global economy: Headwins from tariffs and uncertainties

Global industrial production rose by 0.5% month-on-month in March (seasonally adjusted), ending Q1 with a robust 3.7% year-on-year increase, partly due to US-related pull-forward effects. However, some leading indicators for the global industrial cycle have since weakened: the S&P Global Manufacturing PMI for the world dropped further from 49.8 in April to 49.6 in May, indicating continued contraction of global industrial production. Conversely, sentiment in services recovered after a decline the previous month, with the index rising from 50.9 to 52.0 points, suggesting a slightly higher expansion rate. The overall composite index rose by 0.4 points to 51.2, signalling moderate global economic growth. The financial-market-based Sentix index turned positive again in June, standing at 3.6 points, indicating a cautiously optimistic global outlook.

Global trade in goods surged by 2.2% in March (seasonally adjusted), 6.5% above the previous year. US import activity rose sharply by 5.6%, building on earlier gains since the start of the year, reaching nearly one-third above March 2024 levels. China also contributed strongly, with exports up by 7.6%. These figures suggest that US companies have supported trade through accelerated orders and stockpiling since the start of the year. Overall, global trade in the first quarter increased by 2.0% quarter-on-quarter, after 0.6% growth in the final quarter of 2024. At the beginning of the second quarter, impacts of US tariffs on container throughput appear limited; the RWI/ISL Container Throughput Index rose from 136.2 to 137.3 in April, almost reversing the decline seen in March. Port activity increased in both European and Chinese ports. In the key US West Coast ports, which are important for trade between the US and China, no significant effects on import volumes were observed in April.

International organisations such as the OECD and the World Bank forecast a marked slowdown in global economic prospects following the tariff-induced pull-forward effects seen in the first quarter, assuming tariffs remain in place until the end of May. In light of significantly higher trade barriers, persistent trade policy uncertainty, and increased financial market volatility, global growth expectations for 2025 and 2026 have been revised notably downward to rates below 3% – a marked decline compared to the beginning of the year. These downward revisions are primarily attributable to an expected slowdown in economic momentum in advanced economies, particularly in the United States. The increased uncertainty is expected to dampen business investment, while tariff increases – after initial pull-forward effects – will have a direct negative impact on global trade. Accordingly, both OECD and World Bank June forecasts anticipate world trade growth rates of only around 2 to just under 3% in 2025 and 2026.

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