GERMAN DATA: Q1 Final GDP Comparatively Bright, Potential Growth Muted

Germany's final Q1'25 GDP growth figures were upwardly revised from the flash release, by 0.2pp to 0.4% Q/Q (-0.2% Q4). "Production in the manufacturing sector and exports in particular developed better than initially assumed", Destatis explains.

Underlying drivers partially were a flip from recent quarters, pointing towards a comparatively bright Q1 which was however underpinned by some one-offs. While Q2 might look a bit more muted so far, sentiment overall continues to stands off lows. An uptick in German growth is expected when higher government investment is set to kick in - that might take until 2026, however. By then, rough estimates of potential growth in the country point toward a mere 0.5% Y/Y.

• Private consumption 0.5% Q/Q vs 0.2% Q4: Solid print, fourth consecutive positive quarter but has been more muted before. Note that German real wage growth is projected to taper off in the country during the next quarters.
• Government spending -0.3% Q/Q vs 0.9% Q4: Low figure likely driven by the provisional budgets of the federal government (and some states). The Bundesbank expects government spending to significantly pick up starting 2026 driven by higher military / infrastructure spending.
• Investment excl. inventories: 0.9% Q/Q vs 0.5% Q4, no cons: Strongest since Q1 2022. "Other systems" investment (non-construction / equipment) stood out at +2.0% Q/Q (no comment from Destatis). This arguably was the most worrying part of German national accounts in recent years. An optimistic scenario would see more lenient fiscal policy filter through to private investment also.
• Exports 3.2% Q/Q vs -3.1% Q4: Strong exports were already touted by monthly trade data, but not flagged as an upside driver in the flash print - this makes today's upward revision not entirely unexpected. Net exports' contribution to headline was 0.9pp this time, compared to -1.1pp Q3 and Q4. A reversal of US tariff front-running (which has underpinned the Q1 figures) would call into question if the positive development in the quarter is set to continue.