A Market Lesson From Germany’s Economic Data Revision

Here is a nugget of news that surprised us Friday morning: economic commentary suggesting Germany was back “into recessionary territory” after revising its Q2 GDP down.^[i] Mind you, the revision didn’t shock us—it is generally well known amongst the economic community that preliminary results are based partly on modelling and surveys as statisticians wait for harder data. But we found it odd that Germany would be “back” in recession, since our reading of the data suggested Germany was never actually in recession. So we looked into it, and we think our findings underscore why GDP doesn’t tell you what stocks will do.

The actual Q2 data revision was pretty small, in our view. The Federal Statistical Office, known as Destatis, had initially reported a small -0.1% q/q contraction.^[ii] The revised figure is -0.3% and contains some new details. Household spending grew 0.1% q/q, slowing from Q2’s 0.6% growth.^[iii] Exports slipped -0.1% q/q, a slight comedown from Q1’s 2.5% growth as businesses appeared to front-run US tariffs.^[iv] Imports rose 1.6% q/q, which weighed on GDP since the calculation uses net exports (exports minus imports), but which our research suggests also represents domestic demand.^[v] The other main detractor was gross fixed capital formation, which includes business investment and fell -1.4% q/q.^[vi] Not great, in our view, but it also extends a long-running trend.^[vii]

So overall, we think the headline and underlying results would have fit right in with a trend that we have observed: German GDP alternating between growth and contraction in every quarter since mid-2022.^[viii] We found that pattern interesting. But now it is gone, revised away as part of a regular review.

As Destatis explains: “As is usual at this time of the year, the Federal Statistical Office fundamentally reviewed the results published for the last four years (from 2021 onwards) and included new statistical information in the calculation of the results. This resulted in changes of -0.7 to +0.6 percentage points for the quarterly price adjusted GDP data published so far (see the "Comparison between old and new figures” table in the first release of 30 July 2025). More extensive revisions were required than usual, but the scope of these revisions is similar to that of earlier summer revisions - especially in reference years marked by crises (such as the pandemic years of 2020 and 2021).”^[ix] It goes on to note that a lot of the revision came from changes to the inflation adjustment, a ripple effect of 2022’s inflation spike.^[x] Simply, the statisticians now have more data and better modelling and can more precisely adjust. At the risk of sounding political, given the widespread chatter over data revisions in the US and accuracy of the Labour Force Survey in the UK, we think this is all quite normal stuff.^[xi]

But it means that now, instead of alternating between growth and contraction since Q2 2022, German GDP looks like this.

Exhibit 1: German GDP Growth, Revised

Source: FactSet, as of 22/8/2025.

There is still some back-and-forth, but there is now a three-quarter decline from Q4 2023 through Q2 2024.^[xii] This would qualify for the popular recession definition of at least two straight quarterly GDP contractions. Three quarters of growth followed, but Q2’s decline puts the level of GDP back where it was during that downturn.^[xiii] Hence, we can now see why commentators we follow deem it “back in recessionary territory.”

At any rate, we don’t think this changes much for markets, which our research finds are forward-looking and therefore would have priced all this long ago. German stocks endured a bear market (prolonged, fundamentally driven broad equity market decline of -20% or worse) in 2022, falling -30.0% in euros from their mid-November 2021 high and late-September 2022 low and -26.8% in pounds over this same stretch.^[xiv] US and global stocks (denominated in US dollars) also endured a bear market that year, but it was shallower.^[xv] We have viewed those downturns as sentiment-induced and recessionless, and we think that still holds. But in our view, German stocks’ deeper decline looked more like the sort of thing that pre-prices genuine economic trouble.^[xvi] And now, with better data, we see a recession indeed came along. Simply, we have a clearer view of what markets seemingly already priced.

Since that low, German stocks are up 98.5% in euros and 89.7% in pounds.^[xvii] This, too, still looks rational to us. We find stocks pre-price economic recoveries as well as recession. It isn’t certain when economists will determine German GDP is firmly in recovery—and, to be clear, it isn’t a given statisticians will deem this an official recession. But we think markets have moved on from the negativity and debate.

We also find this normal and rational. Based on our research, stocks look about 3 – 30 months out. In 2022, we think German stocks were looking at an energy crunch and weakness in China potentially creating hardship for German heavy industry.^[xviii] We think it is fair to say they priced a pretty bad recession.^[xix] But even with the revision, Germany’s GDP hasn’t been anywhere near as bad as the worst-case scenarios we saw projected at that time.^[xx] To us, it seems that was enough positive surprise to propel a rebound and help stocks begin looking toward the eventual recovery.

We don’t think a modest, backward-looking Q2 GDP revision changes the calculus here. Whatever this and potential revisions from here show, we think stocks already lived through and priced it and are now hard at work pricing the next 3 – 30 months. With expectations remaining low, we doubt it takes much for positive surprise to keep rolling in—which we find is usually all stocks need.