Growth takes a break in the third quarter due to special factors
The German economy temporarily lost momentum in the third quarter of 2026, but remains on a recovery path. As assumed in the Federal Government's recently published autumn projection, cyclical dynamism decreased slightly in the third quarter following a noticeable upturn in the first half of 2026. Dampening factors included special influences such as the easing of global stockpiling of energy-intensive goods in the wake of the Middle East crisis, as well as ongoing pressures resulting from historic low water levels on German shipping waterways.
Export business, which provided significant growth impulses in the first half of the year, has recently declined. Following the recovery up until mid-year, momentum is expected to be weaker in the third quarter. The primary reasons are the phasing out of advance-purchasing effects resulting from the war in Iran, high energy prices and transport disruptions on inland waterways.
Incoming orders in German industry experienced a significant setback in August, falling by over 10% compared to the previous month after increases in preceding months. This was caused, among other things, by long-standing and highly volatile development in large orders within the "other transport equipment" sector, which includes defence procurement. Excluding large orders, incoming orders nearly stagnated in August, leaving the downward trend since spring unbroken.
Output in the goods-producing sector picked up noticeably in August following a significant drop in the previous month. However, this recovery was largely driven by a strong increase in the construction industry, where the final accounting of a major project in the finishing trades led to substantial growth. In contrast, industrial production remained subdued and, on average for July and August, fell 1.4% below the level of the second quarter. This weakness was particularly pronounced in energy-intensive industrial sectors, which had previously benefited from the global stockpiling of energy-intensive goods. These industries are also likely to be particularly affected by the restricted transport options on waterways due to low water levels.
Conversely, sentiment among German companies points towards a more favourable development as the end of the year approaches. In September, the ifo Business Climate Index rose for the fifth time to its highest level since May 2023. Companies assessed both their current situation and their outlook more positively. The S&P Purchasing Managers' Index increased in September to its highest value since October 2025. In addition to continued expansion of output in the goods-producing sector, service providers are reporting noticeable improvement in their business activity for the first time. The ifo Business Climate Index also indicates a more positive recent development in the services sector, with companies rating current business and business expectations more favourably. The situation for consumer-oriented service providers also seems to be brightening, starting from a very low level: the ifo Business Climate Index for retail (including automotive) rose in September to its highest value since the beginning of the year. While retail sales (excluding automotive) recovered slightly in August compared to the previous month, they remained more than 2% below the previous quarter's level on average for July and August. Consumer sentiment has recently clouded over again: the GfK Consumer Climate Survey fell in October to its lowest value in five months, and the HDE Consumer Barometer also declined significantly in October. In both surveys, income expectations and the propensity to purchase were rated more negatively. Given the inflation, which remains elevated due to energy prices, and falling employment, consumer sentiment among households is unlikely to brighten significantly in the short term.
Global economy continues on groth path
Global industrial production continued to increase in July, with a seasonally adjusted increase of 0.3% compared to the previous month, following a fairly significant expansion of +1.2% in June. Compared to the same month last year, it was up by 2.0%. Regarding future developments, leading indicators continue to point towards a stable global economy. The S&P Global Purchasing Managers' Index for the global economy rose by 0.8 points to 54.3 points in September, indicating a slight expansion compared to the previous month. This increase reflects growth in both industry and the services sector. The Sentix Business Cycle Index for the global economy remains at a high level in October at 13.5 points. While the assessment of the current situation by financial investors is once again slightly more positive thanks to developments in the US and Asian economies, expectations have clouded over somewhat.
Global trade in goods increased by a seasonally adjusted +0.3% in July compared to the previous month, after expanding by 1.8% in June due to the temporary recovery of trade through the Strait of Hormuz. In particular, imports and exports from Latin America as well as US imports increased, while trade in goods in Asia developed more weakly in July. The RWI/ISL Container Throughput Index rose slightly by 0.1 to 141.9 points in August, indicating continued robust development in world trade. Regionally, however, the trend varies: while the North Range Index increased noticeably (+3.4 to 123.9 points), throughput in Chinese ports stagnated at 155.8 points and thus remains below the levels seen before the start of the war in the Middle East. However, according to the International Monetary Fund's Trade Nowcast, ship movement data in August indicate a lower global trade volume in three-month comparison than in the same period last year.
Overall, current forecasts for global economic development continue to assume a robust global economy with growth rates of around 3% in the coming years, despite geopolitical tensions. According to the current forecast by the International Monetary Fund, global trade in goods and services is expected to increase by 4½% this year, given the strong first half of the year; a similar increase is expected for 2027. In addition to investment and trade growth related to the expansion of artificial intelligence, increased investment in the defence sector is also contributing to this.
You can read more information about the economic situation in Obtober 26.