The Economic Situation in Germany in August 2026¹

Despite the problems deriving from the conflict in the Middle East and the significantly higher energy prices, the recent economic development has been robust. In Q2, gross domestic product (GDP) increased by 0.2% quarter-on-quarter (adjusted for price, season and the number of calendar days). Positive contributions to growth were primarily generated by foreign trade, with energy-intensive industries in particular benefiting from higher foreign demand. In contrast, domestic demand remained sluggish, in view of the purchasing power losses and the high level of geopolitical uncertainty. Despite the ongoing improvement in indicators of market sentiment, the economic development in the current quarter is likely to be temporarily affected by the historically low water levels on major German inland waterways and the resulting increases in supply bottlenecks for regional industries. The goods-producing sector increased its output slightly by 0.2% in June as compared to the preceding month. In Q2 as a whole, quarterly growth stood at 0.7%. Energy-intensive industries benefited from the sharp rise in foreign sales, seeing a production increase of 2.5% in the quarterly comparison. New manufacturing orders also saw a substantial rise in June, of 3.1% over the preceding month. This was driven by a sharp rise of 7.8% in domestic orders. However, foreign demand was also remarkably robust, despite the geopolitical conflicts. As in the preceding months, the orders were dominated by above-average large orders. Price-adjusted retail sales (seasonally adjusted, excluding vehicles) fell by 0.7% between May and June. Declining revenues were recorded both by trade in food products and by trade in non-food products. Retail turnover was flat in year-on-year terms. In terms of new car registrations by private individuals, the upward trend seen in the preceding months did not continue in July. They fell slightly, by 0.3% from the preceding month. In the year-on-year and three-month comparison, however, the figures were again clearly higher. Sentiment has continued to stabilise in recent weeks but remains subdued and fragile in overall terms. Inflation rose by 2.8% in July, more strongly than in June (2.3%). This is largely due to the expiry of the energy tax reduction on fuel at the end of June. However, the temporary exacerbation of the conflict in the Middle East also drove energy prices up at times. The weak development on the labour market is continuing: seasonally adjusted employment fell by 23,000 people in June, following a drop of 27,000 in the preceding month (revised figure). There was also a renewed decline in employment subject to social security contributions in May, of 12,000 people. At the same time, the number of unemployed rose by 6,000 people in July. In view of the structural and demographic change, and the persistently high geopolitical uncertainty, the situation on the labour market is not likely to see a significant improvement in the coming months. The number of corporate insolvencies remains high. According to the current IWH insolvency trend, 18,478 insolvencies of partnerships and corporations were reported from August 2025 to July 2026 (8.3% rise year-on-year).

Robust economic development in second quarter

Despite the problems caused by the conflict in the Middle East, the German economy developed more positively in the spring than had generally been expected. According to preliminary data from the Federal Statistical Office on 30 July, GDP rose by 0.2% between the first and second quarters after adjustment for price, seasonal factors and calendar irregularities. For Q1, the increase in GDP has been revised slightly upwards, from +0.3% to +0.4%. In the first half of 2026, GDP was nearly one percent up in year-on-year terms.

According to data from the Federal Statistical Office, exports were the main driver of growth in Q2. This is likely due not least to a more favourable competitive situation for Germany’s energy-intensive industries compared with their Asian rivals. In view of their greater dependency on energy supplies from the Middle East, the latter were more affected by price increases and supply bottlenecks. The shift in demand to European and German suppliers is reflected in the sharp rise in output and foreign sales of German energy-intensive industries. In contrast, no stimulus derived from domestic demand in the second quarter; according to the Federal Statistical Office, public and private spending on consumption was flat, and investment declined.

Despite the continuing tensions in the Middle East, the supply situation of the German economy has recently improved to some extent. According to the latest surveys by the ifo Institute, 13.7% of companies reported material shortages in July, following 17.2% in June. In the chemical sector, the proportion of companies with supply issues even dropped from 29.5% in June to 13.8% in July.

Leading indicators for the third quarter generally show a very positive assessment of future economic development: business expectations have recently brightened, as reflected in the renewed rise in the ifo Business Climate Index, the S&P purchasing managers index and the sentix Sentiment index for Germany; there was also a clear improvement in the ZEW Indicator of Economic Sentiment. The Truck Toll Mileage Index, which tends to be a leading indicator for the month’s industrial output, rose appreciably in July, according to data from the Federal Statistical Office.

However, the current low water levels on major German inland waterways mean that the risk of temporary regional material shortages has risen in the oil, chemicals, construction and steel industries in particular. It is true that many companies have altered their transport logistics in recent years, are maintaining larger stocks, and are using a variety of transport routes in order to make their supply chains more resilient. Nevertheless, the reduced loading capacity is already resulting in a clear rise in transport costs. Depending on the duration of the low water levels, temporary restrictions on output of affected companies can be expected, as well as regional and product-specific price effects due to higher transport and freight costs, and this could reduce output in Q3.

World economy remains robust despite higher energy prices

Global industrial output stabilised in May following two declines, and was virtually unchanged in month-on-month terms (+0.1%). Whilst output in the advanced economies fell slightly ‑0.1% compared with April 2026, production in the emerging economies saw a moderate expansion (+0.3%). It was still slightly up in the year-on-year comparison, at +1.0%. The leading indicators for the global economy recently saw an improvement: the S&P Global Purchasing Managers’ Index (PMI) for the world economy rose by 0.6 points to 52.6 in July, continuing to signal robust growth. At 52.1 points, industrial sentiment remained at roughly the previous month’s level, whilst the index for the services sector clearly pointed upwards (+0.8 to 52.5). The sentix Sentiment index for the global economy brightened for the fourth month in succession in August, reaching the highest level since February 2026. Following the collapse in sentiment in spring 2026 due to the Iran war, it improved to 14.7 points in August.

According to the CPB Netherlands Bureau for Economic Policy Analysis, world trade rose by a seasonally adjusted 1.0% in May compared with April. It had already seen a moderate expansion of 0.3% in the preceding month. Whilst the conflict in Iran appears to have affected trade mainly within the Gulf region, its global impact has so far remained limited. Accelerated stockbuilding, together with strong demand for AI-related electronics, is also likely to have bolstered the global development in recent months.

The RWI/ISL Container Throughput Index stabilised further in June, with a slight rise to 143.1 points. The Nordrange index and activity in Chinese ports increased in June. The International Monetary Fund’s Trade Monitor pointed to a robust development in global trade in June.

Continuing recovery in trade in goods

Despite the continuing tense geopolitical situation, German exports trended upwards again in June. Nominal exports of goods and services expanded clearly by 2.4% between May and June, after adjustment for seasonal and calendar effects. Exports of goods to EU Member States rose rather more strongly than exports to other countries (+1.3% and +0.3% respectively). Amongst the third countries, exports to the United Kingdom rose particularly strongly (+7.7%). Month-on-month declines were seen in exports of goods to the United States (‑14.2%) and China (‑0.3%). At the same time, services exports declined by 0.3%. All in all, exports of goods and services have expanded by 4.4% in year-on-year terms since January. Nominal imports of goods and services were up +5.0% in June compared to the preceding month, more than twice the rise in exports. The rise in trade in goods was mainly driven by higher EU imports (+7.4%), whilst imports of goods from third countries saw a smaller expansion (+1.4%). In contrast, services imports declined by 2.8% month-on-month. Overall, since the beginning of the year, imports of goods and services been significantly higher in year-on-year terms (+4.7%). The monthly balance of trade in goods and services declined by €3.7bn to €8.5bn in June, and in the first half of the year as a whole remained close to the level seen in the first half of 2025.

Following the sharp increases of recent months, import prices saw a slight seasonally adjusted fall in June of 0.5% from May. This is chiefly due to a sharp fall in prices for oil products (‑9.9%) due to the temporary cease-fire in the Middle East. Export prices increased by 0.2% over the same period. This resulted in a slight improvement of the terms of trade between May and June, following five successive declines. In real terms, the expansion of imports was probably greater, and the rise in exports somewhat weaker, than expressed in the nominal figures.

Leading indicators have recently improved: the ifo export expectations improved slightly, by 0.3 to ‑3.3 points in July. The electrical industry is continuing to expect a clear rise in its exports; in mechanical engineering, expectations have again turned positive. The outlook in the automotive industry is still negative, but is improving. In contrast, the manufacturers of metal products and electrical and optical products are anticipating falling exports. Foreign orders rose in June, increasing by 0.2% compared with May and standing 1.7% higher in the three-month comparison. This reverses the picture seen in the previous month: strong growth in orders from the non-Eurozone (+10.2%; May: ‑5.3%) contrasts with a clear fall in orders from the Eurozone (‑14.0%; May: +7.9%).

The growth in German foreign trade is due to the ongoing dynamism in world trade, which remains remarkably robust despite high energy prices. However, the trade-related and geopolitical uncertainty, and thus also the risk of a renewed oil-price shock, still looms in the background. This means that the sales prospects for German exporters remain challenging.

Production and new orders seeing mid-year growth

The moderate upward trend in output in the goods-producing sector is continuing in the middle of the year. According to data from the Federal Statistical Office, its output expanded for the third month in succession in June and is 0.2% higher than the previous month, adjusted for price, seasonal factors and calendar irregularities. This means that output was up by 0.7% in the second quarter as a whole compared with Q1; it was, however, slightly down by 0.3% in year-on-year terms.

As in May, energy generation saw a clear monthly rise of 1.9%. In contrast, industrial output (+0.0%) and construction (+0.1%) were flat. In the quarterly comparison, the construction industry more than compensated for the weather-induced slump at the beginning of the year, with growth of +1.9% in Q2. Energy production also saw an appreciable quarterly recovery of +0.8%, whilst industrial output only grew by +0.3%. Recent figures show a month-on-month weakening of output in the energy-intensive sectors of ‑1.8%; in the quarterly comparison, however, it registered a sharp rise of 2.5%. This indicates a relative improvement of the competitive position of the energy-intensive industries in Germany compared with their Asian rivals. In view of their greater dependency on energy supplies from the Middle East, the latter are more affected by price increases and supply bottlenecks. The shift in demand to European and German suppliers is also reflected in the rise in foreign sales of German energy-intensive industries in recent months.

Broken down by category of industrial good, the consumer goods producers recorded a significant rise in the monthly comparison (+1.0%); in contrast, output of capital goods was virtually flat (+0.2%), and producers of intermediate goods suffered a fall (‑0.9%). In the quarterly comparison, the consumer goods manufacturers also recorded the largest increase (+2.0%), followed by producers of intermediate goods (+1.4%), but capital goods output saw another fall (‑1.1%).

In the construction sector, civil engineering recently developed positively, with a monthly rise of 1.2%, whilst building work (+0.1%) and finishing trades (‑0.1%) were flat in June. In the quarterly comparison, however, all sectors, and particularly the weather-dependent civil engineering sector, registered appreciable growth.

Within the industrial sector, the majority of branches saw declines in June: output was down in the important sector of mechanical engineering in particular (‑3.9%) and in chemical products (1.8%), rubber and plastic goods (‑2.4%), metal products (‑1.3%) and metal production and processing (‑2.0%). In contrast, there were increases in the output of cars and car parts (+3.6%), pharmaceutical products (+3.5%), electrical equipment (+1.1%) and other vehicle manufacturing (+8.4%).

Output in the goods-producing industries has thus proved to be very resilient, despite the external economic challenges in the last quarter.

There has also been a clearly positive development in new orders in the manufacturing sector in mid-year. In June, they saw monthly growth of 3.1% adjusted for price, seasonal factors and calendar irregularities. Q2 saw an increase of 1.3%. This latest expansion was driven by a clear rise of 7.8% in domestic orders. Foreign demand remained roughly at the previous month’s level (+0.2%). Orders from abroad are currently subject to sharp fluctuations: whilst orders from the Eurozone saw an increase of 7.9% in May, they fell back by 14% in June. In contrast, orders from the non-Eurozone rose by 10.2% in June, following a drop of 5.3% in May.

Broken down by category of good, producers of capital goods followed the weak start to the year by registering tangible growth for the second month in succession, with a rise of 6.4%. The lengthy upward trend in consumer goods output continued (+4.2%). In contrast, intermediate goods saw a renewed fall of 2.5%.

Looking at specific branches of industry, the important mechanical engineering sector is prominent with a rise of 12.7%, mainly driven by large domestic orders. Data processing equipment and electronic and optical products also saw increased demand (+22.7%); the same goes for textile goods (+67.9%). Higher output was also recorded by cars and car parts (+3.8%) and metal products (+2.4%). In contrast, producers of chemical and pharmaceutical goods suffered falls (‑3.2% and ‑5.3% respectively). There were renewed strong fluctuations in “other vehicle manufacturing”, which is dominated by large orders (‑41.7%; May: +84.7%).

New orders in the manufacturing sector are currently pointing upwards, due to strong domestic demand. Sharp rises in output of capital goods are presumably mainly due to public procurement related to the modernisation of the Federal Armed Forces as well as projects under the special fund for infrastructure and climate neutrality. However, foreign demand is also remarkably robust, despite the geopolitical conflicts.

Retail revenues slightly down; leading indicators remain stable at low level

Price-adjusted retail sales (seasonally adjusted, excluding vehicles) fell by 0.7% between May and June, and both trade in food products and trade in non-food products saw falling revenues. Retail turnover was flat in year-on-year terms. Trade in non-food products saw a slightly positive stimulus (+0.5%), whilst trade in food products softened a little (‑0.3%). Sales of motor fuels (filling stations) once again acted as a drag, falling by 2.2% over the previous year, but the drop was much smaller than in previous months. Also, the May figure was again revised upwards (‑3.6% compared with ‑6.1%). Internet and mail order trade continued its powerful growth, finishing the first half of 2026 with a rise of 3.3% (against the previous period; retail as a whole: +0.6%).

Turnover in the hospitality sector declined in May in the monthly comparison, both price-adjusted by 2.0% and nominally by 2.1%. Compared with the same month last year, real turnover fell clearly by 6.0%, and the 7.1% drop in the catering sector was much greater than the 2.8% fall in the accommodation sector. In nominal terms, the hotel, restaurant and catering industry as a whole registered a minor drop in turnover of ‑0.3% compared with May 2025.

Total new passenger car registrations fell by 0.6% month-on-month in July, with both the private and the commercial car market registering slight falls. The three-month and year-on-year comparisons, in contrast, both saw slight increases. The growth was again driven by the private (e-)vehicle market, and this is likely due to the state funding for e-vehicles, which since May can be applied for retroactively to January by private individuals. New registrations by private individuals rose by a clear 8.0% compared with July 2025 (June: +28.6%). The three-month comparison also shows a powerful increase of 8.4% (June: +11.1%), although the trend is weakening. New registrations of cars by businesses and the self-employed dropped in the monthly, three-monthly and annual comparison.

The leading indicators for the development of consumer spending stabilised further at a low level, but probably do not fully reflect the repercussions of the renewed escalation in the Middle East conflict. According to GfK forecasts, consumer sentiment is expected to remain negative in August, with a slight fall of 0.3 points to ‑29.6. Sentiment is affected by a drop in income expectations and a rise in the already relatively high propensity to save. In contrast, the propensity to purchase has increased slightly, as have cyclical expectations, which are not covered by consumer sentiment. The HDE consumer barometer, which was published at the beginning of the month, fell back following two increases, and remains at a very low level. The ifo Business Climate Index for retail (including motor vehicles) rose by 3.7 points in June to ‑28.7. As in the previous month, both business expectations and assessments of the current situation improved. Selling price expectations fell substantially, reaching the lowest level since the outbreak of the Iran conflict. Sentiment has continued to stabilise in recent weeks but remains subdued and fragile in overall terms. Also, the impact of the latest military escalation in the Middle East, and in particular the renewed increase in the oil price, only partly fall within the survey period. In view of the persistent weakness on the labour market, therefore, there are currently no signs of a tangible improvement in consumption.

Inflation picking up again in July

In July 2026, consumer prices rose by 2.8% in year-on-year terms, following 2.3% in June. Month-on-month, they were 0.8% higher. The core rate fell slightly to 2.4%, and was thus back below overall inflation. The slight increase in inflation is largely due to higher energy prices; following +3.4% in June, these rose by +8.3% in July. This is largely due to the expiry of the energy tax reduction on fuel at the end of June. To some extent, the temporary rise in oil prices to over $100/barrel due to the renewed escalation of the conflict at the Strait of Hormuz will have impacted energy prices. In total, the contribution to overall inflation by energy rose to around 0.6 percentage points, whilst foodstuffs (+0.4%) again made no significant contribution to inflation. In the services sector, price pressure remained stubbornly above the 2 percent mark at +2.9%, even if it fell slightly from the June level (+3.1%).

According to the ifo Institute, across almost all economic sectors fewer companies planned to raise prices in July; however, ifo says that price expectations reported after the renewed escalation in the Middle East were much higher than before. Nevertheless, average price expectations in the retail sector, manufacturing and services have fallen a little over the last three months. Overall, the development of (energy) prices depends very much on the future course of the Middle East conflict; should this not show signs of improvement, persistent energy price pressures are to be expected.

Weak development on the labour market is continuing

Seasonally adjusted employment fell by 23,000 people in June, following a drop of 27,000 in the preceding month (revised figure). At the same time, the Federal Statistical Office undertook a downward correction of figures reaching back to 2022 as part of its customary summer calculation, resulting in a substantial shift in the level of the unadjusted figures and an even clearer year-on-year decline in employment of 225,000 people in June. There was also a renewed fall in employment subject to social security contributions in May, of 12,000 people. The number of unemployed persons rose by 6,000 in June, with underemployment remaining flat. The utilisation of short-time work continued its downward trend in May, with a year-on-year decline of 101,000 people.

Leading indicators show no signs of an improving labour market outlook. Even if the ifo employment barometer rose slightly in July, survey results indicate a reduction in personnel in all sectors. Whilst the speed of the job cuts in the retail and services sectors slowed to some extent, the employment prospects in manufacturing and construction continued to deteriorate. At the same time, the IAB labour market barometer suggests a slight rise in unemployment, which already stood at more than 3 million people in July. The slight cyclical recovery which set in at the end of 2025 is offset by the challenges of structural change, which are impacting the development on the labour market. In view of the uncertainty caused by the ongoing geopolitical tensions in the Middle East, the situation on the labour market is unlikely to improve much in the coming months.

Corporate insolvencies remain at a high level

According to the current IWH insolvency trend, a total of 18,478 insolvencies of partnerships and corporations were reported from August 2025 to July 2026 (8.3% rise year-on-year). In June, the number of insolvencies fell month-on-month by 1% to 1,689 cases, and was 7% higher than in June 2025. The IWH concludes that insolvencies involving partnerships and corporations remained at an exceptionally high level in July and, based on its own leading indicators, expects to see a very large number of insolvencies in the coming months.

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¹ This report is based on data that were available as of 12 August 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.