A Market Lesson From Germany’s GDP Revision

Here is a headline that caught us off guard Friday morning: “Germany Falls Back Into ‘Recessionary Territory’ as Second-Quarter GDP Revised Down.”^[i] The revision didn’t shock—early results are always based partly on modeling and surveys as statisticians wait for harder data. But we found it odd that Germany would be “back” in recession, considering the data had never really shown Germany was actually in recession. So we looked into it, and our findings underscore why GDP doesn’t tell you what stocks will do.

The actual Q2 data revision was pretty small. 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 front-ran US tariffs.^[iv] Imports rose 1.6% q/q, which weighed on GDP since the calculation uses net exports (exports minus imports), but which 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, but it also extends a long-running trend.

So overall, the headline and underlying results would have fit right in with a trend that has long made us chuckle a bit: German GDP alternating between growth and contraction in every quarter since mid-2022. Not that we were rooting for German GDP to contract—we weren’t and generally just don’t root—but the pattern was interesting at a purely intellectual level. Only now, the pattern is gone, revised away.

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).”^[vii] 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. Simply, the statisticians now have more data and better modeling and can more precisely adjust. At the risk of sounding political, given the storm over data revisions in the US, this is all quite normal stuff.

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 8/22/2025.

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

At any rate, this doesn’t change one iota for markets, which are forward-looking and priced all this long ago. German stocks endured a bear market in 2022, falling -30.0% in euros from their mid-November 2021 high and late-September 2022 low and -40.0% in USD over this same stretch.^[viii] We have long categorized US and global stocks’ shallower bear market that year as sentiment-induced and recessionless, and that still holds. But German stocks’ deeper decline always looked like the sort of thing that pre-prices genuine economic trouble. And now, with better data, we see a recession indeed came along. Simply, we have a clearer view of what markets already priced.

Since that low, German stocks are up 98.5% in euros and 130.9% in US dollars.^[ix] This, too, still looks rational. 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 markets have clearly moved on from the negativity and debate.

This, too, is normal and rational. Stocks look about 3 – 30 months out. In 2022, German stocks were looking at an energy crunch and weakness in China potentially creating hardship for German heavy industry. They priced a pretty bad recession. But even with the revision, Germany’s GDP hasn’t been anywhere near as bad as the worst-case scenarios projected at that time. 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, stocks already lived through and priced it and are now hard at work pricing the next 3 – 30 months. With expectations remaining low, it shouldn’t take much for positive surprise to keep rolling in—which is usually all stocks need.