Chapter 2Macroeconomic Environment

The macroeconomic environment in Germany, Europe’s largest economy, is still undergoing a challenging adjustment process in mid-2025. For 2025, leading economic institutes expect GDP growth of +0.1% (source: Consensus Economics) – after a decline of -0.2% in the previous year. The market environment remains characterized by uncertainty and structural challenges. The inflation rate has weakened further and is currently at 2.0%, at the ECB’s target level. On the positive side, the new federal government has restored a little more confidence in the future economic ability to act. At the same time, changes in trade relations due to US tariff policy are complicating foreign trade dynamics: exports to the US have recently fallen to their lowest level since 2022 (-1.4% compared to April 2025) – a clear indication of the increasing impact of protectionist tendencies at the global level. Although the export volume increased by 0.4% compared to the same month last year, it also demonstrates above all the transformation processes needed in the automotive industry, mechanical and plant engineering and the general metal industry. It is precisely against this background that new bilateral agreements and customs regulations are gaining relevance. The outcome of the ongoing talks between the EU Commission and the US government will be decisive for future developments. In this context, the recent geopolitical and economic uncertainties in the US could lead to a stronger capital allocation to Europe in the medium to long-term. Despite the current economic weakness, Germany remains a reliable and stable investment haven. An economic recovery is in sight from 2026 onwards. According to Consensus Economics, GDP growth of 1.2% is expected. Although real wages continued to rise in the first quarter of 2025 (+1.2% quarter-on-quarter) and interest rates continued to fall, private consumption remains subdued. The savings ratio of Germans is estimated at be around 10.8% for 2025 and thus remains high. Many retailers had hoped for a noticeable recovery in consumption in the first half of 2025. According to the German Retail Association, brick-and-mortar retail in particular remains under pressure, while online retail is showing initial positive momentum.

The yield on 10-year German government bonds was 2.60% at the end of Q2 2025 after a temporary peak in early March. Due to fiscal policy announcements by the new German government to take on extensive government debt, it had temporarily risen to almost 3.00%. However, the yield level has now stabilized again and is currently in the range of 2.50% to 2.60%. For the capital market, this signals a phase of relative calm, at least for the time being. However, uncertainty about the future fiscal orientation especially regarding compliance with the debt brake remains. The current sideways movement in 10-year swap and bond yields suggests that the wait-and-see market environment will continue– especially against the backdrop of lower inflation expectations.