Germany’s producer prices rose by 0.5% year-on-year in January 2025, marking the third consecutive month of producer inflation, according to the Federal Statistical Office (Destatis). However, the figure fell short of analysts’ expectations of 1.3% and was lower than December’s 0.8% increase—the highest in a year and a half.
The uptick was mainly driven by higher costs for non-durable consumer goods, which rose 3% compared to January 2024. Prices of durable consumer goods increased 1.1%, while capital goods saw a 1.9% rise, fueled by higher machinery, trailers, motor vehicles, and semi-trailer costs.
In contrast, energy prices dropped by 1% annually due to falling costs of natural gas, electricity, and district heating, although mineral oil products became more expensive. Excluding electricity, producer prices rose by 1.2% year-on-year. On a monthly basis, prices fell 0.1% in January, the same decline as in December, but below market forecasts of 0.6%.
Ongoing Economic Challenges
Germany’s economy continues to face challenges, contracting by 0.2% in 2024—its second consecutive year of negative growth. The downturn has been attributed to high energy costs, weak export demand, increased global competition, and geopolitical uncertainties.
Political instability has further compounded the situation. The coalition government collapsed in late 2024 after Chancellor Olaf Scholz dismissed Finance Minister Christian Lindner, leading to a confidence vote that Scholz lost.
Additionally, concerns over potential US tariffs under President Donald Trump’s administration have heightened worries about the economic outlook for both Germany and the European Union. In 2023, Germany’s top exports to the US included cars, vaccines, and medicaments, while key imports from the US were cars, crude petroleum, and gas turbines, according to the Observatory of Economic Complexity.
Economic Outlook: Growth Expected to Return
Despite the recent challenges, Germany’s economy is projected to recover gradually. Gross domestic product (GDP) is expected to grow by 0.7% in 2025 and 1.3% in 2026, while inflation is forecast to average 2.1% this year before easing to 1.9% in 2026.
In its latest economic forecast, the European Commission expressed optimism about Germany’s recovery. “Construction is set to resume growth in early 2025, driven by recovering demand for housing and infrastructure,” the Commission stated. It also noted that recent tax incentives for investment, introduced in July 2024, are expected to boost equipment investment.
“Domestic demand is forecast to become the main driver of economic growth in 2025 and 2026,” the Commission added. However, it warned that elevated energy costs will continue to impact the competitiveness of energy-intensive industries. Meanwhile, the contribution of net exports is expected to be slightly negative in 2025 and neutral in 2026, despite an anticipated increase in demand from Germany’s main trading partners.
