New data from the Ifo Institute reveals a contraction in economic output across fourteen of Germany’s sixteen federal states during the second quarter of 2025. The calculations indicate a widespread slowdown following a period of anticipatory activity.
Sachsen-Anhalt experienced the most significant decline, registering a decrease of 1.1 percent. Niedersachsen and Bremen followed closely behind with contractions of 0.7 percent and 0.5 percent respectively. According to Robert Lehmann, an Ifo Institute economist, the observed slowdown is largely attributable to a shift in business practices related to uncertainty surrounding US trade policy earlier in the year. “Many companies advanced their purchases into the first quarter, anticipating potential changes in US tariffs. This resulted in a corresponding lull in activity during the second quarter” Lehmann explained.
The impact of fluctuating trade announcements and subsequent suspensions is not uniform, with different sectors and states bearing the effects to varying degrees. The contrast is particularly noticeable when comparing sectors heavily reliant on the US market, such as the chemical, automotive and machinery industries.
Rheinland-Pfalz and Saarland represent exceptions to this trend, demonstrating slight economic growth after a subdued start to the year. Both states experienced a marked improvement in the Ifo business climate for commercial enterprises, alongside more robust industrial turnover compared to other regions. These factors contributed to the positive economic performance observed in these federal states.
