The Economic Situation in the Federal Republic of Germany in October 2025¹

Current economic indicators show no signs of recovery in the third quarter. In particular, weaker external conditions – including a slowdown in global activity and the growing impact of higher US tariffs – are weighing on German exports, particularly to the United States. Industrial production is being held back by falling foreign orders, although part of August’s decline reflects special factors in the automotive sector due to later factory holidays. By contrast, domestic sectors such as construction and consumer and business-related services are showing signs of stabilisation. Overall, however, economic momentum in Germany remains subdued at the start of the second half of the year. Manufacturing output fell noticeably in August, down 4.3% on the previous month after adjusting for prices, calendar and seasonal effects. Industrial output declined by 5.6%, driven mainly by a sharp 18.5% drop in motor vehicles and parts, partly due to holiday-related effects. Production also decreased across a wide range of industrial sectors. Energy output slipped by 0.5%, continuing its downward trend since June. In contrast, construction output rose by 0.6%, marking its third consecutive monthly increase. Retail sales (price-adjusted, seasonally adjusted, excluding motor vehicles) fell again in August by 0.5% compared with July, following an upward revision to the previous month’s figure. Year on year, retail turnover was 1.5% higher, with food sales down 0.9% and non-food sales up 3.1%. Private car registrations rose by 5.0% in September compared with the previous month, and by 11.8% in the three-month comparison. Overall, consumer sentiment points to a muted spending trend in the second half of 2025. The inflation rate edged up slightly in September, rising to 2.4%, driven mainly by services. Core inflation remained elevated at 2.8%, while energy prices continued to ease, standing 0.7% lower than a year earlier. Inflation is expected to remain broadly stable at just above 2% through to the end of the year. The number of unemployed people rose slightly in September, up 14,000 on a seasonally adjusted basis. Total employment dipped marginally in August (-8,000), while jobs subject to social security contributions edged up again in July (+8,000). Given the recent weak economic performance and the rather mixed signals from leading indicators, prospects for a noticeable autumn upturn in the labour market remain subdued. According to official statistics, corporate insolvencies increased by 12.3% in July compared with June, reaching 2,197 filed cases, and were 13.4% higher than a year earlier. The IWH insolvency trend for both incorporated and unincorporated firms indicates a further 5.1% rise in September compared with the previous month.

Continued weak growth in the third quarter

The upward trend in business sentiment seen earlier this year – particularly in companies’ expectations for the months ahead – had raised hopes of an economic recovery in the second half of the year. However, the latest indicators for the third quarter show no sign of a pick-up so far.

The main drag continues to come from external factors. After the strong rise in exports early in the year ahead of expected US tariff increases, German goods exports – especially to the United States – have recently lost momentum as global trade has slowed.

The weakening in global demand over recent months – partly due to the impact of higher US tariffs – has also led to a sharp decline in foreign orders, especially from outside the euro area. Germany’s highly export-oriented manufacturing sector has been particularly affected. As a result, industrial output has tended to lose momentum since spring. However, the sharp drop in industrial production in August compared with the previous month was partly due to special factors, such as the later-than-usual timing of factory holidays in the automotive industry and production adjustments. The HGV toll mileage index, which correlates closely with industrial production, at least suggests an increase again in September.

In the domestically oriented sectors, there are so far signs of stabilisation in the third quarter. Construction output has recently risen slightly and, after seasonal adjustment, now stands slightly above the level of the previous quarter. Although retail turnover declined again in August, the production index for consumer-related services recorded a strong increase in July after a noticeable fall in the previous month. While business sentiment in the wholesale and retail sectors has cooled somewhat, the recent improvement in consumer confidence – reflected in the HDE Consumer Barometer and GfK Consumer Climate Index – suggests a degree of stabilisation in private consumption, albeit from a still subdued starting point. In the business-related services sector, production rose at the beginning of the quarter, at least partly offsetting the previous decline.

Overall, against the backdrop of persistently weak external demand and still limited domestic momentum, the latest indicators suggest that the economy once again remained weak in the third quarter. This assessment is consistent with the Federal Government’s autumn projection. Towards the end of the year, however, the Federal Government’s economic and fiscal policy measures are expected to increasingly take effect, helping to stimulate a gradual economic recovery.

Global trade remains volatile, further slowdown expected

Global industrial production remained broadly unchanged in July compared with the previous month, as output in the advanced economies declined slightly while production in emerging and developing economies rose moderately. In the first quarter, global industrial activity had expanded markedly due to frontloaded deliveries to US companies ahead of the expected tariff increases; in the second quarter, momentum had already slowed somewhat as anticipated. Leading indicators for the global economy remain volatile and continue to send mixed signals. The S&P Global Purchasing Managers’ Index (PMI) for the world economy fell by 0.5 points to 52.4 in September, signalling slightly weaker growth momentum than in August. While industrial sentiment stagnated at around 50.8 points, confidence in the services sector eased from 53.3 to 52.8 points. In contrast, the Sentix Economic Index for the global economy showed a further improvement in October, reflecting more optimistic expectations as well as a better assessment of the current situation among financial investors.

According to the CPB World Trade Monitor, global goods trade also remains subject to significant fluctuations, likely linked to the announced tariff increases and the subsequent delays or adjustments to tariff rates. After a first quarter boosted by special factors and subsequent monthly declines, trade activity rose sharply in July, up 1.3% month on month. This was mainly driven by strong growth in imports to the United States. The RWI/ISL Container Throughput Index shows a minimal decrease from 138.5 to 138.3 points in August, indicating a sideways movement. While activity in Chinese ports increased somewhat, in European ports it declined. So far, global trade has remained relatively resilient, although the effects of the new tariffs are not yet fully visible. According to the RWI, container throughput is expected to weaken in the coming months. This assessment is consistent with that of international organisations such as the World Trade Organization, which has recently revised its 2025 forecast for global goods trade upwards to 2.4%, citing the sharp rise in US imports ahead of the tariff increases and strong trade in AI-related products. However, for 2026, a marked slowdown in trade dynamics to a mere +0.5% is expected, reflecting the impact of higher tariffs and ongoing uncertainties.

Foreign trade continues to decline in august

Against a backdrop of increased trade barriers and persistently high uncertainty, foreign business activity among German companies has weakened further. In August, nominal exports of goods and services fell by 1.7% month on month after adjustment for seasonal and calendar effects. Since the beginning of 2025, however, exports remain 0.7% higher than in the same period last year, partly reflecting frontloaded deliveries to the United States ahead of tariff increases earlier in the year. While exports to the EU and again to the United States declined compared with the previous month, higher shipments to China helped support overall export performance. Nominal imports of goods and services also fell sharply in August – down 2.1% month on month after seasonal and calendar adjustment – with declines seen across a broad range of sectors. Imports from the United States, however, rose again following a steep decline in July. Taken together, imports have remained noticeably higher so far this year – 5.1% above the level of the same period in the previous year. The monthly trade surplus widened slightly in August, from €8.8 billion to €9.1 billion, as imports fell more sharply than exports. Nonetheless, between January and August, the surplus was around €37 billion lower than in the same period of the previous year.

Import prices continued to decline in August, falling by 0.3% month on month after seasonal adjustment, mainly due to lower energy and commodity prices. Export prices remained stable, leading to a 0.3% improvement in the terms of trade compared with July. Adjusted for prices, the decline in imports of goods and services is therefore likely to be somewhat less pronounced.

Leading indicators remain volatile in light of the recent tariff increases and adjustments, and continue to present a mixed picture. New foreign orders fell further in August, down 4.1% from the previous month. The sharpest declines were in consumer goods orders (-13.3%), while capital goods (-4.1%) and intermediate goods (-1.2%) producers also saw weaker foreign demand. Even in the less volatile three-month comparison, foreign orders turned negative for the first time since March, declining by 2.6%.  By contrast, the ifo Export Expectations Index improved noticeably in September, rising from -3.0 to +3.5 balance points, and moving into positive territory for the first time since April 2023. However, this does not yet point to a sustained recovery. While the automotive sector has become significantly more optimistic about its foreign business, the mechanical engineering industry expects declining exports over the next three months. Higher tariffs, ongoing trade and geopolitical uncertainties, and reduced (price) competitiveness continue to weigh on Germany’s foreign trade performance. As the impact of US tariff policy is likely to weigh on global trade only gradually as the effects of earlier frontloading wear off, exports are expected to remain weak in the coming months.

Special factors weigh on industrial activity

The manufacturing sector noticeably reduced its output in August, down 4.3% on the previous month after adjustment for price, seasonal and calendar effects. Industrial production in particular saw a sharp decline of 5.6%. Energy output decreased only slightly (-0.5%), though this continues the downward trend observed since June. In contrast, the construction sector recorded a third consecutive increase, up 0.6%.

Most branches of industry experienced a decline in August. The sharpest contraction was in motor vehicles and parts (-18.5%) though other key sectors also reduced their output. In particular, after strong growth in July, mechanical engineering recorded a marked decline (‑6.2%). Output was also lower in metal products (-1.1%), chemical products (-1.0%), and food and feed production (-2.3%).

In three-month comparison, the contraction in the production sector was less pronounced (‑1.3%). The decline in industrial production likewise eased significantly (-1.7%), while construction output, despite positive trends in recent months, edged down slightly (-0.7%) due to the sharp drop in May. Energy production, by contrast, registered an increase of 1.4%. 

According to the Federal Statistical Office, the steep decline in car production was mainly due to factory holidays falling in August this year rather than the usual July, and to production adjustments.

New orders in manufacturing declined for the fourth consecutive month in August. The order volume fell by 0.8% from July after adjustment for price, seasonal and calendar effects. July’s figure was revised to a decrease of 2.7%. Excluding large-scale orders, new industrial orders were down 3.3% month on month. Over the three-month period, orders fell by 2.3%.

While domestic orders rose sharply, up 4.7%, foreign orders declined by 4.1%.  The weakness was particularly marked outside the euro area (-5.0%), though orders from within the euro area also fell (-2.9%). As a result, domestic demand provided the main support to incoming orders.

By goods category, consumer goods orders dropped by 10.3% compared with July, while capital goods orders were down 1.5%. Among capital goods, domestic orders increased by 3.7%, whereas foreign orders fell by 4.1%.

Looking at individual industries, orders fell sharply in pharmaceuticals (-13.5%), data-processing, electrical and optical equipment (-11.5%), and motor vehicles and parts (-6.4%). By contrast, orders increased in other transport equipment (+17.1%), metal prod-ucts (+15.4%), electrical equipment (+7.2%), chemicals (+0.4%), and mechanical engi-neering (+0.9%).

The renewed pick-up in domestic demand suggests that industrial activity may be bottom-ing out, while foreign demand remains sluggish. The continued high share of large do-mestic orders for capital goods may reflect growing activity in the defence sector.

Retail turnover declines again after upward revision in the previ-ous month; sentiment indicators mixed

Price-adjusted retail sales (seasonally adjusted, excluding motor vehicles) fell by 0.5% in August compared with the previous month. However, the figure for July was revised upwards by 0.2 percentage points. Within this, food retail sales rose slightly, up 0.2%, while non-food sales declined by 1.4%. Compared with the same month a year earlier, retail turnover was up 1.5%, with food sales down 0.9% and non-food sales up 3.1%. In the three-month comparison, retail turnover was broadly flat (+0.1%). Passenger car registrations fell slightly in September, down 0.4% compared with August, but rose 7.8% in a three-month comparison and were 12.8% higher year on year. Private car registrations increased by 5.0% month on month and by 11.8% on a three-month comparison, while registrations by businesses and the self-employed persons declined by 3.1% in the same period. In the hospitality sector, turnover rose by 1.0% in nominal terms and by 0.8% in real terms in July compared with the previous month. Year on year, however, turnover fell 0.6% in nominal and 3.7% in real terms.   After a noticeable recovery in private consumption in the first quarter of 2025 and stagnation in the second, the leading indicators currently paint a mixed picture. According to GfK forecasts, the consumer climate is expected to stabilise in October, rising by 1.2 points to -22.3 after three consecutive declines. In September, the GfK index stood at -23.5 points, indicating that sentiment remained deep in negative territory. The rise in income expectations provided some support, though this did not translate into higher purchasing propensity. The HDE Consumer Barometer is trending upwards in October after losses in the previous two months. The ifo business climate index for retail (including motor vehicles) also edged up by 0.3 points to -23.7, marking the first increase after three months of decline. While the assessment of the current situation improved, expectations weakened. Both indicators remain clearly in negative territory.

Overall, the current sentiment points to a muted development in private consumption in the second half of 2025. Concerns about Germany’s economic outlook, job security, and geopolitical tensions are contributing to continued consumer restraint.

Inflation rate rises to 2.4 per cent in september

The inflation rate – the year-on-year increase in the general price level – rose slightly, edging up to 2.4% in September following 2.2% in August. Compared with the previous month, consumer prices (seasonally adjusted) also increased modestly, up 0.2%. Energy prices continued to have a dampening effect, though less strongly than before, with a year-on-year decline of 0.7% in September (August: -2.4%). Services, by contrast, remain the main driver of inflation, rising 3.4% year on year. The recent slowdown in service-price inflation has therefore come to a halt (August: +3.1%). The core inflation rate – excluding energy and food – stood at 2.8% in September, remaining at an elevated level. Inflation is expected to remain broadly stable at just above 2% through to the end of the year.

Labour market momentum fades at the start of the final quarter

The autumn upturn on the labour market has so far been comparatively weak. The num-ber of unemployed persons rose by 14,000 in September (seasonally adjusted). This in-crease was mainly due to a further rise in unemployment among recipients of insurance-based benefits under Social Code III, which tends to fluctuate with the business cycle, whereas unemployment in the basic income support system (Social Code II) declined slightly. Underemployment remained broadly unchanged compared with the previous month. Employment also showed little movement. Total employment declined slightly in August (-8,000), while jobs subject to social security contributions increased again in July by around 8,000. The use of cyclical short-time work remained virtually unchanged in Ju-ly, affecting close to 200,000 persons, with the number of notifications of short-time work continuing to trend downwards.

Looking ahead, leading indicators at the start of the fourth quarter paint a mixed picture. The IAB Labour Market Barometer rose for the sixth consecutive month in September, but according to firms surveyed by the ifo Institute, hiring expectations deteriorated noticea-bly, reaching their lowest level since June 2020. The sharpest declines were observed in the services sector. While industry and trade point to further job cuts, only construction is showing signs of a slight increase in employment. Overall, prospects for a noticeable au-tumn recovery in the labour market remain subdued.

Corporate insolvencies continue to rise

According to official statistics, corporate insolvencies increased by 12.3% in July com-pared with June, reaching 2,197 filed cases – the highest monthly figure since October 2013. Compared with the same month a year earlier, insolvencies were up 13.4%. The number of affected employees (11,320) fell for the third consecutive month (-15.8%) and was also lower than a year ago, while expected liabilities rose again by 48.3% after a de-cline in June. The continuing increase in insolvency activity reflects a combination of factors, including the persistently weak overall economic environment, structural chal-lenges, higher costs, and geopolitical uncertainties.

The IWH insolvency trend, which provides a narrower and more timely measure for corpo-rations and partnerships, recorded 1,481 insolvencies in September, an increase of 5.1% month on month and 14.1% year on year. The number of affected employees (19,990) was up 62% compared with August. According to the IWH, the upward trend in insolven-cies is likely to pause temporarily in the coming months, with insolvency numbers ex-pected to stabilise at a high level.

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[1] This report is based on data that was available as of 13 October 2025. Unless stated otherwise, these are rates of change against the respective preceding period on the basis of price-adjusted figures which have also been adjusted for calendar-day and seasonal variations.