Investors are puzzled about what is going on in the German economy. At first, it seemed like it had come back to life and stopped stalling, but let’s not celebrate too soon. What if it slows down again or even slides into the abyss? Nevertheless, investors still believe in its resilience.

According to analysts at Deutsche Bank Research, the German economy has recently gained enough momentum to avoid stagnation in 2025. Updated reports from Germany’s Federal Statistical Office show that the country’s GDP grew by 0.4% in the first quarter of this year. This marked a turning point for the German economy, which had long been struggling with weak performance.

Part of this rebound was driven by a sharp rise in exports in March 2025, particularly in the pharmaceutical and automotive sectors. Experts at Deutsche Bank believe this trend reflects companies’ efforts to accelerate deliveries. Private consumption in Germany rose by 0.5%, and investments increased by 0.9%. These are the signs of strengthening domestic demand, recognized by Deutsche Bank.

The only negative factor was a 0.3% decline in government consumption. Deutsche Bank attributes this to the federal government operating under a temporary budget. They expect the situation to improve once an official budget is approved.

Deutsche Bank experts believe that the recovery will “remain fragile due to ongoing trade-related uncertainty in Q3 2025.”

However, analysts also expect the current positive trend in domestic demand to persist in Q2 2025.

Their confidence is supported by the rise in the Ifo business climate index, even though the composite PMI dropped to 50 points. Experts say that both indicators still point to a recovery in the manufacturing sector.

A potential hike in US tariffs in July remains a key issue. Preliminary forecasts suggest that stabilization may be possible by Q4 2025. Once the German government exits its temporary budgeting mode and presents a fiscal plan for 2026, a flow of new investments will revive.

Against this backdrop, the bank’s analysts foresee further GDP growth of 0.3% for the full year.

Deutsche Bank specialists believe that consensus forecasts predicting another year of stagnation for Germany’s economy are underestimating its current improvement.