By Maria Martinez
BERLIN (Reuters) -German state coffers got a strong boost in March despite weak economic growth, according to fiscal revenue data published by the finance ministry on Wednesday, with wage growth emerging as a key booster but only for the time being.
Federal and state government tax revenue rose by 11.1% year on year in March to 86.16 billion euros ($98.91 billion), the ministry said in its monthly report. In February, tax revenue had increased by 8.9%.
However, Europe’s largest economy is struggling to exit a two-year downturn. The uncertainty unleashed by U.S. President Donald Trump’s radical import tariff policies have only compounded concerns that Germany might suffer a historic third straight year of contraction in 2025.
Wage growth is currently acting as a boost to tax income but such data can be late to reflect the economy’s health overall, economist and tax specialist Friedrich Heinemann at the ZEW institute told Reuters.
The consequences of Trump’s trade war, paired with falling corporate profits and further job losses in industry, are only likely to hit tax revenues in full after a year, he said.
"While reassuring for now, the tax revenue figures should ... not be extrapolated into the future," Heinemann said, adding: "Tax authorities must also be ready for lean times."
The German government cut its economic forecast for this year and now foresees stagnation instead of a previously forecast 0.3% growth, a source told Reuters on Tuesday.
Early indicators suggest a slight economic recovery in the months ahead, but this is likely to be dampened by trade policy developments, the report said.
Germany is expected to be badly affected by Trump’s stiff import taxes due to its export-oriented economy. The U.S. was Germany’s biggest trading partner in 2024 - before Trump returned to the White House - with two-way goods trade totalling 253 billion euros ($289.66 billion).
The trade tensions come alongside a slowdown in German industry, with automobile giant Volkswagen (ETR:VOWG_p) and electronics manufacturer Bosch (NSE:BOSH) among the companies cutting jobs as high costs and stiff competition from abroad weigh on businesses.
($1 = 0.8734 euros)