Slowdown of economic activity in mid-2026
Following an appreciable recovery in the first semester of 2026, there are signs in mid-year that the economy may be slowing down. It is true that the sentiment indicators, including the ifo Business Climate Index, the ZEW Indicator of Economic Sentiment and the S&P Purchasing Managers’ Index for Germany, all continued to brighten up recently, with significantly stronger ratings of not only business expectations, but also the current situation. But it is also true that this positive sentiment does not translate into improvements of the most recent economic indicators. Despite the positive view on the current situation, industrial production in July actually slowed down. Besides the automotive sector, whose production was restricted partly as a result of a planned, temporary factory shutdown, the special upswing in the energy-intensive industries seems to be wearing off. In Q2, these had benefitted from the global stockpiling trend for energy-intensive products as they were able to offer more favourable sales conditions than Asian suppliers, who were more affected by higher energy prices and supply bottlenecks as a result of the de-facto closure of the Strait of Hormuz. The manufacturing sector has seen its order books fill up recently, but this major increase is largely due to large orders linked to public procurement; without these, the pipeline slimmed down for the fourth consecutive time. Foreign demand tended to fall in the past few months, and this has been felt the most by the energy-intensive industries. This quarter, further pressure is added by the persistently low water levels of key German inland waterways, which have the potential to result in regional material shortages and slowdowns in production. This, too, is likely to reduce industrial output over the short term.
The latest indicators on consumer spending also show a subdued picture overall. While the GfK Consumer Climate Survey for August shows a slight brightening of economic and income expectations, propensity to purchase remains at its previous low level. The HDE Consumer Climate Index was able to nearly make up the preceding month’s losses, but remains below its performance level from the beginning of the year; similarly, the ifo Business Climate in German Retail (excluding cars) inched up in August – both in terms of assessment of the situation and expectations. Among these subdued indicators, retail turnover (adjusted for price and seasonal fluctuations) stood out with its steepest fall in over five years, but it is likely that special effects such as the end of the “fuel rebate” scheme, which expired at the end of June, played a part in this.
Overall, economic recovery is likely to have slowed down appreciably in Q3. The reason for this is the Middle East conflict, which remains unresolved and is bringing about a high level of uncertainty and energy inflation, thus eating into private household’s disposable incomes. At the same time, persistently low water levels are also making themselves felt in the economy.
The global economy is continuing to prove resilient
Global industrial production expanded by 1.3% (seasonally adjusted) between May and June, thus picking up speed after two consecutive months of stagnation. This is a 2.1% increase year-on-year. Despite the ongoing Middle East conflict, the leading indicators are sending positive signals for the global economy going forward. The S&P Global Purchasing Managers’ Index (PMI) for the global economy rose by 0.8 points in August to 53.5, indicating a slight expansion compared to the preceding month. The increase is driven by improvements in the figures for the industrial sector (+0.2 points to 52.3) and for services (+1.0 points to 53.7). The sentix Sentiment index for the global economy has been at a record high since February 2022, with a reading of 14.6 points in September. The financial investors take an optimistic view, particularly with regard to economic trends in the eurozone and in Asia, driven by China.
The global trade volume in goods expanded by 2.0% between May and June (seasonally adjusted), following an increase of 0.5% in the preceding month. The largest increases were recorded in Africa and the Middle East (13.6% and 16.1% respectively), which is likely to be connected to a temporary recovery of trade through the Strait of Hormuz in June. The RWI/ISL Container Throughput Index gave way only a little in July (by 0.2 to 142.5 points). However, the figures for individual regions show a more differentiated picture: while the Nordrange index gave only -0.3 points to stand at 119.4 points, container throughput in the Chinese ports dropped 1.7 points to 157.3, keeping it below the levels seen before the confrontation in the Middle East. The IMF Trade Nowcast, which relies on vessel tracking data to estimate the global trade volume, is also down for July.
You can read more information about the economic situation in September 26.
