The Economic Situation in the Federal Republic of Germany in April 2026¹

Economic activity in Germany weakened markedly in Q1. After a brief improvement in sentiment at the start of the year, expectations among both businesses and consumers deteriorated again. Industrial activity was recently subdued, and construction recorded significant weather-related losses. In addition, supply bottlenecks and rising energy and raw material prices are weighing on companies. Consumer-related sectors are suffering from rising prices, weak demand and uncertainty. Economic developments in Germany will depend crucially on a resolution of the conflict in the Middle East. Even then, however, high energy prices, supply disruptions and economic strains are likely to persist for some time. Industrial activity weakened noticeably over the winter months. While new orders resumed their upward trend in February following a marked setback at the start of the year, industrial production has recently declined slightly. In light of the sharp rise in energy prices and heightened geopolitical uncertainty resulting from the conflict in the Middle East, leading indicators point to a deterioration in industrial activity in Q2. Price-adjusted retail turnover (seasonally adjusted, excluding motor vehicles) fell by 0.5% month-on-month in February, following a slight downward revision to the January figure. Compared with the same month last year, retail turnover in February increased by 0.7%. New passenger car registrations by private individuals rose by 5.2% month-on-month in March, but declined by 9.3% in the three-month comparison. Overall, recent sentiment indicators point to a marked deterioration in consumer activity in Q2 of 2026. Inflation increased markedly to reach 2.7% in March, driven by the war in Iran involving Iran and the resulting rise in energy prices. This was driven by a sharp rise in energy prices, which increased significantly for the first time since December 2023, while developments in food prices had a moderating effect. Seasonally adjusted unemployment stagnated again in March. At the same time, the number of gainfully active persons declined slightly further in February, and employment subject to the payment of social security contributions recorded a noticeable decrease in January. With leading indicators still subdued and economic risks stemming from the conflict in the Middle East, no upturn in the labour market is currently in sight. The IWH Insolvency Trend for partnerships and corporations shows a 17% increase in insolvencies in March compared with the previous month and an 18% increase compared with March 2025.

Economic slowdown in Q1

Economic activity in Germany lost noticeable momentum in the Q1 against the backdrop of the conflict in the Middle East. While sentiment indicators in the corporate sector initially improved slightly at the start of the year, and some consumer indicators also picked up, they deteriorated significantly following the outbreak of the Iran war.

Current indicators in industry suggest that the German economy is likely to have grown only very modestly in Q1. New orders in the manufacturing sector recovered somewhat in February after the sharp decline in the previous month; however, the increase was driven primarily by stronger foreign demand, while domestic orders fell again. This was largely due to a further decline in orders from capital goods producers, which are heavily influenced by large-scale defence-related contracts. Industrial production was broadly unchanged in February following a decline in the previous month and, on average over January and February, stood just over one percentage point below the level recorded in Q4 of 2025. Energy-intensive industries were the only area to perform somewhat more favourably, rebounding noticeably in January and February after the downturn at the end of 2025.

Leading indicators for industrial production, such as the Federal Statistical Office’s Truck Toll Mileage Index and VDA data on motor vehicle production, point to broadly weak industrial activity in March. This is likely also due to the effects of the Iran war, including higher energy and raw material prices and supply bottlenecks for intermediate goods. According to surveys by the ifo Institute, around 90% of industrial firms report that they are affected in their business activities by the Iran war. More than one-third of companies report delays in deliveries of intermediate goods and raw materials.

No signs of recovery are visible in domestically oriented sectors either. In construction, gross value added is likely to have declined in Q1 due to adverse weather conditions at the start of the year, which affected both building and civil engineering activity. In the first two months of the year, construction output was more than 2% below the level of Q4 of 2025.

Sentiment in (consumer-related) services has also deteriorated significantly, reflecting sharp increases in energy prices and heightened geopolitical uncertainty. The S&P Services PMI fell in March to its lowest level since September last year, while retail expectations in the ifo business climate survey have recently weakened. In January and February, retail sales, which account for almost one-third of private consumption, were on average around half a percentage point below their level in the final quarter of 2025. Private vehicle registrations were also significantly lower in Q1 than in the previous quarter. The hospitality sector recorded a decline of around 4% in turnover in January 2026 compared with December 2025. Consumer-related services are likely to remain subdued in the coming months, given weakness in the labour market, energy-driven losses in purchasing power, and unresolved geopolitical tensions. Public services in areas such as healthcare, education and public administration are, however, likely to continue providing some stabilisation.

Recent developments in foreign trade provide a bright spot in the economic picture. Following the setback at the beginning of the year, nominal exports of goods and services rose markedly in February and, on average, stood 2.7% above the level of the previous quarter in January and February. Nominal imports also rebounded in February after the earlier decline. However, against the backdrop of global economic headwinds stemming from higher energy and commodity prices, external demand is also expected to lose momentum in the coming months.

Economic developments in Germany will depend largely on the outlook for the Iran war. The announced ceasefire is an important condition for the normalisation of trade and production capacity in the Middle East. However, given the extent of damage to production capacity in the region to date, and the backlog caused by supply bottlenecks in energy and other commodities, this process is likely to take considerable time. As a result, energy and commodity prices are expected to remain elevated. The adverse effects on the German economy are therefore likely to persist in the course of the year, with only a gradual normalisation of energy and commodity prices in the most favourable case.

Global economy remains resilient, but uncertainty stays high

Global industrial production continued to expand in January, rising by 0.5% month-on-month. While output declined in the eurozone, eastern Europe and Latin America, it increased in Japan, China and the United States. Compared with January 2025, global production was up by 3.8%. However, leading indicators have recently deteriorated as a result of the Iran war. The S&P Global World Purchasing Managers’ Index fell again in December, dropping 3.3 points to 51.0, although it remains above the expansion threshold of 50. Sentiment among service providers weakened noticeably, declining from 52.6 to 50.8 points, while the manufacturing sector recorded a smaller decline of 0.5 points to 51.3. According to Sentix, financial investors took a more pessimistic view of the global economy in April, with the index falling from 9.7 to -2.9 points.

Global trade in goods expanded strongly at the start of the year, increasing by 2.0% month-on-month in January after broadly stagnating in December. Trade between Asian economies in particular rose significantly, while activity in the eurozone declined. Overall, global trade in January was 5.2% higher than a year earlier. Container throughput data also point to robust trade in February: the RWI/ISL Container Throughput Index remained at a comparatively high level of 144.8 points. While activity in Chinese ports declined due to the Lunar New Year, throughput in European ports increased significantly as trade with China was brought forward.

In their spring forecasts, economic research institutes and international organisations have recently revised down their expectations for global trade in the coming months. Despite the agreed ceasefire between the United States and Iran, the global economic outlook remains highly uncertain.

Foreign trade gained momentum prior to the Iran war

Following a period of weakness in the wake of US tariff policy in 2025, export activity has recently regained some momentum. Nominal exports of goods and services increased by 2.2% month-on-month in February (seasonally and calendar-adjusted). After the setback at the start of the year, trade in goods with EU countries expanded significantly again in February (+5.8% month-on-month), while goods exports to other countries rose only modestly (+0.8%); shipments to both the United States (-7.5%) and China (-2.5%) declined. On average in January and February, total exports of goods and services were 2.7% higher in nominal terms than in the previous quarter. Nominal imports of goods and services also rose by 2.6% month-on-month in February following the previous decline, but have remained 0.9% below the previous quarter’s average since the start of the year. As imports increased somewhat more strongly than exports, the monthly trade surplus in goods and services narrowed by €0.3 billion to €12.2 billion.  

Seasonally-adjusted import prices stagnated in February following the sharp increase in the previous month, while export prices declined slightly compared with January, down by 0.1%. As a result, the terms of trade, measured as export prices relative to import prices, deteriorated by 0.1% month-on-month.

Leading indicators have recently deteriorated again as a result of the Iran war. ifo export expectations declined markedly in March, falling from 2.7 to -0.9 balance points after three consecutive increases. The automotive sector, however, continues to expect rising foreign sales, contrary to the overall trend. Overall, many firms – particularly energy-intensive ones – anticipate weaker demand in key export markets.

Foreign orders recovered somewhat in February, increasing by 4.7% month-on-month following the previous decline. Capital goods orders in particular contributed to this increase (+7.5%) over the previous month. Demand from both the eurozone and other trading partners was driven mainly by higher orders for motor vehicles. In the less volatile three-month comparison, foreign orders were up by 1.0%.

Up to the outbreak of the Iran war, German export activity appears to have stabilised. However, indicators for Q2 point to a renewed slowdown due to a noticeable increase in energy prices and persistent geopolitical uncertainty.  

Industrial production weakened at the start of the year

Output in the goods-producing sector declined by 0.3% month-on-month in February (adjusted for price, seasonal and calendar variations). On a calendar-adjusted basis, it was unchanged compared with a year earlier. According to upwardly revised data, output had stagnated in January. In the three-month comparison, however, production fell slightly, down by 0.4%.

The largest declines in February were recorded in construction (-1.2%), likely reflecting the unusually severe cold spell that persisted in parts of Germany at the beginning of the month. While energy production increased slightly in February (+0.3%), industrial production was broadly unchanged (-0.1%). 

Within industry, producers of intermediate goods (+0.4%) and capital goods (+0.1%) reported slight increases. By contrast, consumer goods production declined noticeably for the second consecutive month (-1.5%). The drop in construction output was mainly driven by finishing trades (-1.8%), while building construction (+0.3%) and civil engineering (+0.1%) stabilised following weather-related falls in the previous month.

Developments across industrial sectors were mixed. Output increased in electrical equipment (+2.6%), motor vehicles and parts (+1.7%), metal products (+1.6%) and chemicals (+0.9%). Energy-intensive industries also expanded significantly once again (+1.9%). By contrast, production declined in pharmaceuticals (-4.4%), computers, electronic and optical products (-3.9%), and machinery (-0.3%). 

New orders in manufacturing stabilised, rising by 0.9% month-on-month in February (adjusted for price, seasonal and calendar variations) after a sharp decline of 11.1% in January. In the less volatile three-month comparison, orders increased by 2.0%, while year-on-year growth stood at 3.5% (working-day adjusted).

The increase in orders month-on-month was driven by stronger foreign demand (+4.7%), whereas domestic orders declined again (-4.4%). Domestic orders have been subject to considerable volatility in recent months due to large-scale public investment and procurement projects in the second half of 2025. Adjusted for these large orders, domestic demand increased by 2.5% in February. Total orders, adjusted for large-scale orders, showed an even stronger increase, up +3.5%.

Among product groups, consumer goods recorded the strongest growth (+4.5%), while intermediate goods (+1.4%) and capital goods (+0.2%) increased slightly. Year-on-year, orders rose for consumer goods (+10.2%) and capital goods (+4.9%), with intermediate goods broadly unchanged (-0.2%) over February 2025.

Compared to the previous month, order books improved in most industrial sectors in February, including key industries such as motor vehicles and parts (+3.8%), basic metals (+3.7%) and metal products (+2.0%).  By contrast, demand declined in particular for other vehicles (-25.9%), including military vehicles. Mechanical engineering (-0.3%), electrical equipment (-0.4%) and pharmaceuticals (-2.4%) also recorded declines.

After gaining momentum in autumn, industrial activity weakened somewhat over the winter months. Despite a slight setback in February, turnover in manufacturing remains on an upward trend. However, new orders in the manufacturing sector continue to be volatile. As the implementation of public investment and procurement projects is likely to take time, existing orders are expected to translate only gradually into higher value added. At the same time, recent surveys such as the ifo Business Climate Index point to a deterioration in industrial activity Q2 amid heightened geopolitical uncertainty.

Retail sales decline; leading indicators weaken

Price-adjusted retail turnover (seasonally adjusted, excluding motor vehicles) fell by 0.5% month-on-month in February, following a slight downward revision to the January figure. While sales of non-food products increased by 0.8% compared with the previous month, food sales declined by 1.4%.  Compared with a year earlier, retail sales rose by 0.7% in February, with food sales broadly unchanged and non-food sales up by 1.3%. In the three-month comparison, total retail sales also continued to trend slightly upwards (+0.6%), with non-food sales increasing by 0.3% and food sales by 1.1%. Turnover in the hospitality sector was flat in nominal terms in January but declined by 3.9% in price-adjusted terms. Compared with a year earlier, this corresponds to a real decline of 5.0% and a nominal increase of 2.0%.

Total new passenger car registrations rose by 0.9% month-on-month in March, but declined by 6.1% in the three-month average. Compared with a year earlier, registrations were up by a strong 16.0%. Registrations by private individuals increased by 5.2% month-on-month but fell by 9.3% in the three-month comparison. Compared with March 2025, they were up by a substantial 22.1%. Registrations by companies and self-employed persons declined by 1.2% compared with February and fell by 4.4% in the three-month comparison, but rose by a strong 13.0% year-on-year.

Following the escalation of the conflict in the Middle East, leading indicators for Q2 point to a more subdued outlook, as expected. According to GfK forecasts, consumer sentiment is set to deteriorate in April, falling by 3.2 points to -28.0, after declining by 0.6 points to -24.8 in March. This was driven primarily by a marked decline in income expectations, which had still been positive in February. The deterioration is likely to reflect concerns about rising consumer prices and significantly weaker economic expectations. While the propensity to spend and to save has not changed markedly, the latter is already at a very high level.

The HDE consumer barometer also declined in April for the second consecutive month. The ifo Business Climate Index for retail (including motor vehicles) fell again in March, down to ‑29.8 points. While expectations became significantly more pessimistic than in February, assessments of the current business situation actually improved. Selling price expectations rose relatively moderately compared with the previous month, reaching their highest level since November 2025. Overall, recent sentiment indicators point to a marked deterioration in consumer activity in Q2 of 2026. In the wake of the war in the Middle East, hopes for overall economic growth and rising personal incomes have largely given way to concerns about higher prices and increased geopolitical uncertainty.

Inflation picks up markedly in march

The inflation rate stood at 2.7% year-on-year in March. Compared with February, consumer prices increased significantly, up by 1.1%. Core inflation stood at 2.5%, slightly below headline inflation and unchanged compared with previous months. Service prices continued to rise at an unchanged rate of 3.2%, while goods inflation accelerated noticeably, climbing to 2.3%. This was driven in particular by a sharp rise in energy prices, which increased significantly for the first time since December 2023 (+7.2%), while food price inflation remained moderate (0.9%). The rise in energy prices in March is directly linked to geopolitical tensions in the Middle East and the resulting disruptions in energy markets. Crude oil prices repeatedly exceeded USD 100 per barrel during the month, well above levels in previous months (four-week average: USD 98 per barrel; three-month average: USD 76 per barrel). Gas prices also increased noticeably, while electricity prices remained elevated.

Employment outlook remains subdued

The decline in employment is continuing at the start of the year. The number of gainfully employed persons fell again, declining by 12,000 in February (seasonally adjusted), while employment subject to social security contributions declined by 30,000 in January. Overall unemployment remained unchanged in March, as a decline of 10,000 people receiving means-tested unemployment benefits under Social Code II was offset by an equivalent increase in those receiving unemployment insurance benefits under Social Code III.

Underemployment also remained broadly unchanged. The number of persons in short-time work is estimated to have declined slightly again in January, falling by 6,000. Reported short-time work in March is expected to remain broadly unchanged from the previous month. As the decline in employment over the past few months has only partly resulted in higher unemployment, demographic change – alongside cyclical weakness – is likely to become an increasingly important driver of labour market developments.

Leading indicators continue to provide no evidence of a recovery in the labour market. Both the IAB Employment Barometer and the ifo Employment Barometer stabilised at low levels in March, but restructuring processes in companies are ongoing. While employment may have been partly affected by weather conditions during the winter months, prospects have also failed to improve in sectors that are largely weather-independent. A recovery in the labour market is therefore not expected in the first half of the year.

Corporate insolvencies remain at a high level

The IWH Insolvency Trend for partnerships and corporations shows a 17% increase in insolvencies in March (+1,716) compared with the previous month and an 18% increase compared with March 2025. The number of employees affected (around 14,000) in the largest 10% of insolvent firms declined by 40% compared with the previous month and was 15% lower than in March 2025. The increase in the number of insolvencies is therefore attributable primarily to smaller firms.

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¹ This report is based on data that were available as of 10 April 2026. Unless stated otherwise, these are rates of change against the respective preceding period on the basis of price-adjusted figures which have also been adjusted for calendar-day and seasonal variations.