The German Real Estate Market 2025 | 2

The German economy recorded modest growth in the first quarter of 2025. Price-adjusted gross domestic product (GDP) increased by 0.2% compared to the previous quarter; however, it declined year-over-year.

The ifo Business Climate Index improved slightly, rising by 0.2 points to 85.3 in April 2025. While the current business situation is assessed somewhat more positively, expec­ta­tions for the coming months continue to deteri­orate. Export expec­ta­tions, in particular, are weakening amid inter­na­tional trade policy uncer­tainties.

The inflation rate stood at 2.1% in April 2025, down from the preceding months’ figures. The signif­icant drop in energy prices had a partic­u­larly dampening effect. In response to easing inflation, in April, the European Central Bank (ECB) cut its key interest rate for the seventh consec­utive time, bringing it to 2.25%. According to the ECB, further rate decisions will be data-driven, given the high uncer­tainty of U.S. tariff policies.

The labor market remained stable in the early months of 2025. Between January and March, the unemployment rate held steady at 6.4%; in April, it declined slightly to 6.3% due to seasonal effects. However, the usual spring recovery was weaker than in previous years, reflecting subdued overall economic momentum.

The conclusion of coalition negoti­a­tions between the CDU/CSU and the SPD marked an important political milestone. The new coalition agreement contains economic policy measures aimed at strength­ening long-term growth, including targeted infra­structure invest­ments and incen­tives to boost compet­i­tiveness.

The federal government has revised its GDP forecast for 2025 to stagnation (0.0%). The tariff conflict with the U.S. and volatile geopo­litical condi­tions are having a partic­u­larly negative impact. Planned infra­structure and defense spending could provide economic stimulus starting next year.