REGIONAL REPORT infrastructure but also tax cuts, increased subsidies and transfers to organisations and households. The Maastricht debt ratio is expected to rise to around 66 % by 2027. It had already reached 62.5 % by the end of 2024.
“ Germany’ s public finances can cope with a temporary increase in the deficit and debt ratios,” concluded Joachim Nagel.
“ The rise in inflation, as measured by the Harmonised Index of Consumer Prices( HICP), will slow to 2.2 % as an annual average in 2025. Inflation is then likely to decline temporarily to 1.5 % in 2026 due to energy prices, before rising again to 1.9 % in 2027. The core rate( excluding energy and food) will fall to 2.6 % this year and thus remain markedly higher. It will then fall to 1.9 % in 2026. From 2026 onwards, the core rate will settle at around 2 %,” concluded the bank.
German machine tool orders
The BMW factory at Regensburg.
Image: BMW.
Orders received by the German machine tool industry in the second quarter of 2025 remained at the same level as in the same period in 2024. According to the VDW( German Machine Tool Builders’ Association), domestic orders in Germany fell by 14 per cent, while orders from overseas rose by seven per cent. In the period from January to June 2025, orders fell by five per cent. Domestic demand, it said, fell by 22 per cent, while overseas orders were up four per cent on the previous year.
“ The main impetus in the first half of the year came from Europe, although demand levels have not yet picked up in the domestic German market,” said Dr. Markus Heering, Executive Director, VDW, on 12 August 2025.
The ongoing uncertainty caused by U. S. tariff policy and other crises are causing investors to take a waitand-see approach, according to the VDW. While the recently negotiated tariff rate of 15 per cent applies, this will increase costs and significantly inhibit German exports to its largest market( the U. S.), added the VDW.
“ U. S. industry urgently needs our machines because no comparable domestic alternatives are available, yet small and medium-sized U. S. companies in particular will not be able to pay the higher prices,” cautioned Heering.
In contrast, highlighted the VDW, the medium-term outlook in Germany is brightening. The approved increase in spending on defence and infrastructure as well as the recently adopted investment package, could noticeably raise consumers’ willingness to make new purchases.
“ The ifo business climate index is signalling improved sentiment in the German manufacturing industry. The international Purchasing Managers’ Index( PMI) also shows that the slump in the industrial sector is bottoming out. Nevertheless, this is not the hoped-for turnaround,” indicated the VDW.
Bundesbank President, Joachim Nagel.
The Bundesbank’ s experts expect stronger growth rates of 0.7 % and 1.2 % for 2026 and 2027
Image: © Gaby Gerster / Bundesbank.
“ The recovery of the machine tool industry has been put back once again,” explained Heering.“ We do not anticipate a return to stable growth until 2026.”
Domestic demand, particularly, is expected to provide a boost, while overseas business is likely to be weaker than previously expected.
“ The tariff policy of the U. S. is harming its own economy the most, which will not be providing any great impetus in the near future,” outlined Heering.
Sales of German machine tools in the first six months of this year, confirmed the VDW, were down nine per cent.
“ However, more than 1,500 exhibitors at EMO 2025 in Hannover this September will be presenting a range of innovations designed to raise their customers’ competitiveness. We are expecting this to provide crucial impetus,” concluded Heering on 12 August 2025. In May this year, the VDW confirmed that orders received by the German machine tool industry in the first quarter of 2025 were ten percent down on the same period last year. Domestic orders fell by 30 per cent, while orders from outside Germany remained at the previous year’ s level.
“ Europe remained the top sales market for the German machine tool industry in the first quarter. There was a noticeable increase in demand from many key countries. Overall, the region grew by almost a third, albeit from a low level. The downward trend in Asia also came to an end in the first quarter. Increasing by six per cent, the region saw positive growth again for the first time. It is particularly gratifying that China recorded slight growth again after a long hiatus,” confirmed the VDW.
On the American continent, positive impetus came, above all, from projects in Mexico. Orders from the U. S., on the other hand, fell by a tenth.
“ Among the top customer industries, medical technology and aviation are the sectors with the strongest demand, according to an economic survey of machine tool and component manufacturers conducted in the first quarter of 2025. There are also signs of recovery in the engineering sector, as a whole, with encouraging growth in the first quarter of this year. The automotive industry remains the biggest worry,” said the VDW in May this year.
The German machine tool sector produced machines and services worth around 14.7 billion euros in 2024.
The U. S. administration has recently expanded the scope of existing Section 232 tariffs on steel and aluminium to cover, for the first time, a machine tool: machining centres for working metal( customs code 845710). According to customs data, the measure could affect around € 500-million worth of European exports.
“ Under the new rules, machining centres will be subject to a 50 % tariff on the value of their steel and aluminium content, in addition to a
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