The Economic Situation in Germany in June 2026¹

In spring 2026, the German economy is still suffering from the impact of the war in the Middle East and the clear rises in energy and raw material prices. Whilst the mood in industry recently stabilised to some extent, the dynamism in the services sector has weakened appreciably. Consumption-related fields like the retail and catering trades are sensing the reluctance to spend resulting from losses of purchasing power and from increased uncertainty. Economic dynamism likely saw a clear slowdown in the second quarter. However, a cyclical recovery is only expected to come in small steps, depending on the future course of the conflict in the Middle East and the resulting development in energy and raw material prices. German industry was subdued at the start of the second quarter. Following a sharp rise, new orders fell in April. Industrial output was flat. In the less volatile three-month comparison, both new orders and industrial output pointed downwards. Current indicators of sentiment suggest that the substantial falls will be followed by a stabilisation at a low level. Price-adjusted retail turnover (seasonally adjusted, excluding motor vehicles) fell by 0.3% in April compared with the previous month, following an upward revision to the March figure. Year-on-year, the retail sector experienced negative growth of 0.3% in April. In terms of new car registrations by private individuals, May saw another clear year-on-year rise, and new registrations also rose significantly in the three-month comparison. Sentiment has recently stabilised, but it remains fragile and down at a low level. In May, consumer prices slowed down to +2.6% over the previous year after seeing a year-on-year rise of 2.9% in April. The reason for this was the reduced push from energy prices (+6.6% after +10.1%); here, the temporary reduction in energy tax cushioned the fuel price rise. A low level of dynamism in food prices (+0.4%) reduced the rise; in contrast, service prices rose further, by +3.1%, and core inflation increased slightly to +2.5%. The labour market remains weak in the spring: the seasonally-adjusted number of unemployed did fall slightly in May, but gainful employment saw another decline in April. Despite a slight increase in March, employment subject to social insurance payments also trended downwards. In view of persistently high energy prices and the uncertainty about the next stages of the war in the Middle East, no recovery in the demand for labour is expected during the summer. The number of cases filed for corporate insolvency rose by 6.7% between January and February 2026 to 2,048, representing a one per cent fall year-on-year. The latest official figures for March 2026 will be published on 12 June 2026. The IWH insolvency trend for partnerships and corporations – methodologically narrower and more up-to-date than the official statistics – recorded a 15% drop in insolvencies in May compared to the preceding month, and a 3% increase year-on-year.

Slow business activity in the spring

Following the pick-up in economic activity in Germany at the beginning of the year, there are signs of an economic slowdown in the second quarter against the background of the ongoing conflict in the Middle East and the related clear rise in energy prices.

In view of the increased geopolitical uncertainties, higher costs for energy and raw materials, and growing supply chain bottlenecks, the latest figures show more and more indications of a weakening of domestic and foreign demand, particularly for capital goods. According to the latest ifo Institute survey, the proportion of industrial companies affected by shortages more than doubled from 7.5% in January to 15.9% in May, and is now at the highest level for two-and-a-half years. Sectors with a high level of demand for oil- and energy-intensive intermediate products, such as the chemical industry and manufacturers of rubber and plastic goods, are feeling the effects of the global reduction in supply.

Following the collapse in the indicators of sentiment following the escalation in the Middle East, these have since stabilised at a low level given the provisional cease-fire and the ongoing peace talks. This presumably reflects the expectation of an incipient rapprochement in the conflict in the Middle East. However, even if this does happen, the price level for energy is likely to remain significantly higher for quite some time before there is a general normalisation of production and trading capacities, and the supply situation for key upstream goods will probably remain tense. Even if the mood in the business community has not recently deteriorated further, and current indicators like the Truck Toll Mileage Index suggest a certain recovery in May, industrial output will likely only see a continuing restrained development in the coming months in view of the persisting problems.

The services sector is also increasingly feeling the geopolitical crisis situation and the energy-price-related losses in purchasing power. According to a recent survey by the German Chamber of Commerce and Industry in May, service providers say their current business situation and their expectations have appreciably worsened. Also, the purchasing managers index for the German services sector is stuck below the growth threshold of 50 points, even if the decline in business activity recently weakened slightly.

On the demand side, households are continuing to exercise restraint in their purchases. Even though real wages in the first quarter rose considerably, by 1.8% over the previous year, both consumer spending and consumer-related services remain weak. For example, price-adjusted retail turnover (excl. cars) fell further in April, as did real turnover in the hotel and restaurant industry in March. However, consumer sentiment recently appears to have stabilised at a low level. The HDE consumer barometer rose slightly in June, and the GfK Consumer Climate Survey saw a moderate recovery, with income expectations brightening somewhat, whilst the propensity to purchase remained at a low level. As long as energy prices remain significantly inflated and geopolitical uncertainty persists, no tangible recovery in consumer spending is to be expected.

Overall, the current cyclical indicators point to a stagnation in the macroeconomic development in the second quarter, with substantial risks of a renewed escalation in the Middle East conflict, a further rise in prices for energy and raw materials, and a worsening of bottlenecks in supplies of materials.

Global economic dynamism slowing

Global industrial output fell appreciably in March, with a seasonally-adjusted month-on-month drop of 1.7%. Whilst output in the industrialised countries generally stagnated, there was a big slump of ‑26.0% in the region of the Middle East and Africa, due to the war in Iran and the closure of the Strait of Hormuz. In year-on-year terms, it was only 1.3% higher. The leading indicators for the world economy are currently suggesting a stabilisation at a low level: the S&P Global Purchasing Managers’ Index (PMI) for the world economy was flat at 51.8 points in May, signalling continuing moderate growth despite the Iran conflict. To some extent, this is probably because clients brought their orders forward in order to mitigate expected price increases and supply issues. Industrial sentiment (52.6 points) was higher than that in the services sector (51.3 points) for the third time in succession in May. In contrast, the economic expectations of financial investors remain rather optimistic: notwithstanding the continuing high level of uncertainty about the next developments in the conflict in the Middle East, the Sentix Economic Index rose by 4.4 to 8.0 points in June. Both situation assessments and business expectations for the world economy improved.

For the first time since August 2025, global trade in goods fell back substantially between February and March, by ‑2.1%. As a result of the de facto closure of the Strait of Hormuz, African and Middle Eastern foreign trade dropped significantly. Further to this, there were sharp falls in China’s exports and those of the Asian emerging economies; some of this was probably related to the Chinese New Year festivities, which came well into this year. Compared with March 2025, the volume of global trade was still up by 2.9%; the month before, the level of expansion had stood at 7.6%.

Ship movements and container handling data point to further falls in the second quarter. The RWI/ISL Container Throughput Index saw another fall, from 142.2 to 141.2 points, due to the ongoing closure of the Strait of Hormuz. The Nordrange Index for the development in the northern eurozone softened by 1.5 points to 118.5 points. There was a particularly large decrease in activity in Chinese ports. According to the RWI, supply chain disruption due to the conflict in the Middle East and falling demand were major factors behind this. The International Monetary Fund’s Trade Monitor also slipped into negative territory in April for the first time for around three years, and indicates declining trade activity.

Current forecasts for the global economic development, based on the assumption of a swift calming down of the conflict in the Middle East, expect GDP growth rates of around 3% for this and next year, but stress the considerable downside risks should energy prices remain elevated for a lengthy period, and should supply chain disruption continue. Tangible impacts on global trade are also forecast, signifying much smaller rises than last year, despite the boom in trade with AI-related goods.

Foreign trade still recovering at outset of second quarter

Germany’s foreign orders continued to rise at the outset of the second quarter. Nominal exports of goods and services rose by 2.7% month-on-month in April (seasonally and calendar-adjusted), after March figures had been flat. More goods were delivered both to the EU and to other countries than in the previous month. Whilst exports to the US picked up, the downward trend on the Chinese market continued. All in all, exports of goods and services have expanded by 2.2% in year-on-year terms since January. Nominal imports of goods and services rose significantly in April, by +4.5% compared with March, with more goods being purchased particularly from the US and from third countries in general, but also from the eurozone. The monthly surplus from trade in goods and services fell further in April, by €2.5 billion to reach €6.4 billion.

Seasonally-adjusted import prices, particularly for upstream goods, rose further between March and April due to the conflict in the Middle East. Prices for exports also continued to rise, by 0.9%, so that the terms of trade saw a monthly deterioration of 0.4%. In real terms, both exports and imports likely saw a somewhat weaker expansion.

Most leading indicators have deteriorated against the background of the ongoing conflict in the Middle East: ifo export expectations dropped in May from ‑1.2 points (revised figure) to ‑5.5 points. After four months of improved expectations, the automotive industry is now anticipating lower exports. In addition, the energy-intensive sectors are coming under pressure due to the increased energy prices on the global market, and are expecting lower exports. In contrast, the electrical engineering sector is continuing to take a slightly optimistic view of the export business over the next three months.

Foreign orders fell by 4.2% between March and April, following two rises. Considerably fewer orders were received from the eurozone (‑11.1%), whereas demand from third countries rose slightly (+0.8%). Despite the setback at the beginning of the second quarter, foreign orders for intermediate, consumer and capital goods continued to trend upwards.

Following a dynamic start to 2026 for the world economy due to high investments in artificial intelligence, favourable financing conditions and lessening trade tensions, current indicators are pointing to a weakening due to the conflict in the Middle East and the related higher costs, uncertainties and supply chain bottlenecks. The coming months are therefore expected to follow the recent encouragingly robust development in German exports with a tangible decline in sales prospects.

Industrial output flat in April, construction industry continues recovery

Output in the goods-producing sector made a subdued start to the second quarter. Adjusted for price, seasonal and calendar variations it expanded by 0.4% in monthly terms. At the same time, the statistics for the two previous months, and particularly for the construction sector, were revised significantly upwards by the Federal Statistical Office, so that the overall decline since the beginning of the year is smaller. Year-on-year, output in the goods-producing sector fell by 0.5% (adjusted for variations in the number of working days). In the three-month comparison, too, output declined by 0.5%; in year-on-year terms it was down by 1.7% (adjusted for calendar variations).

Following four successive falls, industrial output was flat between March and April (0.0%). In the construction sector, the recovery from the weather-related slump at the beginning of the year continued with a further clear expansion of 2.4%. In the energy sector, in contrast, output was virtually flat, at +0.2%, following the clear fall the month before. Energy-intensive industries continued the recovery they had been making since the start of the year, expanding by +1.0% in April.

Broken down by categories of goods, both intermediate (+1.4%) and consumer goods (+1.9%) recorded a monthly rise. In contrast, the decline in output of capital goods continued (‑1.5%).

In the construction sector, the finishing trades (+3.2%) and the more weather-dependent civil engineering sector (+1.5%) saw increases, whilst building work was slightly down (‑0.4%).

Most of the branches of industry saw a slight monthly rise in output: in particular, other vehicle manufacturing (+3.2%), pharmaceutical products (+3.0%), chemical products (+2.1%), metal production and processing (+1.9%), metal products (+1.6%) and rubber and plastic goods (+1.6%) saw clear increases. In contrast, the important sector mechanical engineering (+0.8%), as well as computer equipment, electrical and optical products (+0.5%), saw a weaker development. There were falls in particular in the production of cars and car parts (‑4.7%), and coking plants and oil processing (‑2.9%).

Aside from the construction sector, which is registering a powerful recovery following a weather-related slump, the industrial economy is very restrained at the beginning of the second quarter against the backdrop of the ongoing conflict in the Middle East and the rise in energy prices.

Following the preceding clear rise, there was an expected drop in new orders at the beginning of the second quarter. In April, after adjustment for price, calendar-day and seasonal fluctuations, new manufacturing orders fell 3.8% below the March level – both including and excluding large orders. In March, probably not least due to orders being brought forward in the light of impending supply problems caused by the de facto closure of the Strait of Hormuz, they had increased by 4.5% (revised figure). In comparison with April 2025, however, industrial demand was still up by 1.6% after adjustment for workday fluctuations. In the less volatile three-month comparison, the development recently pointed downwards, at ‑3.1%.

There were fewer orders both from the domestic market (‑2.9%) and from abroad (‑4.2%) in April. After two sharp rises, eurozone clients reduced their orders by 11.1%, whereas orders from other countries continued to point upwards, at +0.8%.

Broken down by category of goods, the previous sharp expansion was followed by declines in orders for consumer (‑6.7%) and intermediate goods (‑4.4%) in particular. The trend, however, continues to point upwards in both segments. In contrast, the volume of orders for capital goods manufacturers dropped tangibly, both in April (‑2.9%) and in the three-month comparison (‑7.3%).

Developments varied in the individual branches of industry. Whilst important areas like cars and car parts (‑5.3%) and mechanical engineering (‑7.4%), as well as electrical equipment manufacturing (‑16.3%), pharmaceutical products (‑2.6%) and other vehicles (‑7.4%), registered appreciable downturns in orders at the beginning of the second quarter, the order pipeline for metal and chemical products remained roughly at the previous month’s level. Orders were slightly up for data, computer and optical equipment, metal production and the textile and clothing industry (+0.6% in each case).

There are now increasing signs that the higher prices for energy and raw materials, and the greatly increased geopolitical uncertainties, are feeding through into reduced demand for capital goods in particular. Following the recent subdued order development, growing supply chain tensions are likely to affect the development in output in some areas.

Slight decline in retail sales; leading indicators steady

Price-adjusted retail turnover (seasonally adjusted, excluding motor vehicles) fell by 0.3% in April compared with the previous month, following an upward revision to the March figure. Whilst non-food retail sales fell by 2.2% month-on-month, food sales rose by 3.2%. Year-on-year, the retail sector experienced negative growth of 0.3% in April. Neither non-food nor food sales provided any significant stimulus, with a clear fall in trade in motor fuels (filling stations) pulling the figures down. As in the preceding months, the latter saw real sales losses due to the substantial rise in fuel prices. In the three-month comparison, total retail turnover also showed a clear downward trend (‑0.8%), with non-food sales increasing by 0.2% and food sales falling by 1.3%.

Turnover in the hospitality sector declined in March, falling by 1.3% in nominal terms and by 2.2% in real terms. Compared with a year earlier, there was a real decline of 5.2% and a nominal increase of 2.5%.

Total new passenger car registrations rose by 0.7% month-on-month in May and by 1.9% in the three-month comparison. They were flat in year-on-year terms, with the market being driven by more deals with private consumers. New car registrations by private individuals were a clear 8.5% higher than in May 2025, after they had already increased tangibly in the two previous months (companies and self-employed: ‑4.1%). The ongoing significant growth in sales of e-vehicles is striking; it has likely been boosted by the federal support for low- and middle-income private individuals purchasing e-vehicles since mid-May (retroactively from January). In the month-on-month and the three-month comparison, car registrations by private individuals also rose, contrasting with a slight fall in new car registrations by companies and the self-employed.

Following sharp falls due to the ongoing conflict in the Middle East, the leading indicators for the development of consumer spending did largely stabilise in the second quarter, but still show a pessimistic picture. According to GfK forecasts, the consumer climate is expected to recover to some extent in June, rising by 3.3 points to -29.8 after declines in the months before. The clear rise in income expectations in particular had a positive effect, although it had been preceded by a slump in April. The propensity to purchase also saw a slight increase, and the propensity to save dropped slightly. The HDE consumer barometer, which was published at the beginning of June, rose to some extent, after several clear falls. The ifo business climate index for retail (including motor vehicles) also edged up to -37.2 points. Whereas business expectations were up by 2.9 points to ‑46.2 points, assessment of the current situation fell by 1.9 points to ‑27.6. The sales price expectations followed a sharp rise since February by falling back below the previous month’s level.

Sentiment has recently stabilised, but it remains fragile and down at a low level. Despite a slight improvement, the leading indicators therefore still do not suggest a tangible pick-up in consumption in the second quarter. In particular, the critical situation in the Middle East and its repercussions for the global economy will probably keep consumer uncertainty at a high level.

Inflation slightly down in May

The rise in consumer prices slowed in May to +2.6% (April: +2.9%) following a slowdown in energy prices (+6.6% after +10.1%) and a below-average rise in food prices (+0.4%); in contrast, service prices picked up speed (+3.1%) and raised core inflation to +2.5%. The elevated energy and raw material prices are likely to dominate price developments in the coming months, and gradually to feed through to downstream price stages. Also, the expiry of the temporary cuts in fuel taxes in July is likely to have the opposite effect to the previous relief.

Labour market remains dominated by economic weakness and uncertainty

Despite a slight recovery in the spring, the overall labour market remains weak. The seasonally-adjusted number of unemployed fell by 12,000 in May. However, this is to some extent a correction following the holiday-related rise seen in the preceding month. Unemployment was 31,000 higher than the year before. Underemployment saw a similar development. Gainful employment saw a smaller decline – of 5,000 people in April, seasonally adjusted – than in the preceding months. Employment subject to social insurance contributions rose by 9,000 people in March, almost offsetting the previous month’s fall, but is trending downwards in the longer-term perspective. The number of persons on short-time work likely remained stable in March, and early figures suggest that the number of notifications of short-time work in May probably also remained at the preceding month’s level.

Despite a slight brightening of the mood, the labour market outlook remains restrained. The leading indicators have recently stabilised, but remain negative. According to the employment barometer of the Institute for Employment Research, the job agencies are anticipating a slight rise in unemployment in the coming three months. At the same time, at most only a few branches of industry are expected to recruit more workers, according to the companies surveyed by the ifo Institute. Whilst the employment prospects in industry remain weak, service providers did bounce back from the slump in their willingness to recruit in the preceding month. In view of persistently high energy prices and the uncertainty about the next stages of the war in the Middle East, no recovery in the demand for labour is expected during the next few months.

Corporate insolvencies well down in May, but remain at high level

The number of cases filed for corporate insolvency rose by 6.7% between January and February 2026 to 2,048, representing a one per cent fall year-on-year. This represents an increase of around 24.2% over the 2016-2019 February average (1,653). The likely claims by creditors from the corporate insolvencies registered in February 2026 amounted to around €2.5 billion, well below the figure a year before (€9.0 billion).

The IWH insolvency trend for partnerships and corporations – methodologically narrower and more up-to-date than the official statistics – recorded a 15% drop in insolvencies to 1,518 in May compared to the preceding month, and a 3% increase year-on-year. The number of employees affected (around 11,000) in the largest 10% of insolvent firms declined by 43% compared with the previous month and was 22% lower than in May 2025. The main reason for the fall in the number of jobs affected by insolvencies compared with the preceding months was the fact that there were no particularly large corporate insolvencies in May. On the basis of its own leading indicators, the IWH assumes that the June insolvency figures will remain at a similarly high level.

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¹ This report is based on data that were available as of 11 June 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.