The Economic Situation in Germany in September 2026¹

Even though the latest sentiment indicators have seen some considerable improvement, economic momentum, which had recently been quite robust, showed signs of losing traction at the beginning of Q3. The specific economic upturn of the energy-intensive industries, which had been driven by rising foreign demand as a result of the Middle East conflict, seems to have weakened around the middle of the year. Indicators for the domestic economy point to a slowdown in growth of private consumption in the face of energy prices that are persistently high. Apart from the ongoing Middle East conflict, which is causing levels of uncertainty and energy prices to rise yet again, low river levels have also had a dampening effect this quarter. Output in the goods-producing sector declined by 1.1 percent between June and July (adjusted for price, seasonal and calendar variations). The reason for this was falling industrial production. By contrast, new orders in the manufacturing sector increased by 2.5 percent, up to their highest level since December. However, this rise was driven by large orders in connection with public procurement. Prospects for a broader and stronger revival of industrial activity in the remainder of the year remain slim. Price-adjusted retail sales (seasonally adjusted, excluding vehicles) fell by an appreciable 3.4 percent between June and July, with the trade in non-food articles performing much less favourably than the food trade. Year-on-year overall earnings were also down. The number of new private car registrations was up significantly in August, whereas companies and the self-employed registered fewer new vehicles. Sentiment has continued to stabilise in recent weeks but remains subdued and volatile in overall terms. The inflation rate moved upwards again in August, standing at +2.9 percent: this development was driven by energy prices, which increased again in the face of the persisting Middle East conflict and rising prices on the crude oil markets. By contrast, the price pressure in the services and food industries eased, keeping the core inflation rate stable at +2.4 percent in August. The unemployment rate (adjusted for seasonal fluctuations) inched up slightly (+4,000 persons) in August. Gainful employment fell by 14,000 in July. Employment subject to mandatory social security contributions stagnated in June (adjusted for seasonal fluctuations), but declined year-on-year. As demand for labour remains slow, the positive cyclical momentum recently observed is likely to take some time to make itself felt on the labour market. The number of corporate insolvencies remains high. According to official statistics, a total of 24,867 corporate insolvencies were reported from July 2025 to June 2026 (7.6 percent rise year-on-year). The IWH insolvency trend, which is two months ahead of the official statistics, shows that 18,600 insolvencies of partnerships and corporations were filed between September 2025 and August 2026 (8.2 percent rise year-on-year).

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 percent (seasonally adjusted) between May and June, thus picking up speed after two consecutive months of stagnation. This is a 2.1 percent 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 percent between May and June (seasonally adjusted), following an increase of 0.5 percent in the preceding month. The largest increases were recorded in Africa and the Middle East (13.6 percent and 16.1 percent 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.

Recovery of foreign trade once again interrupted at beginning of Q3

The marked increase in exports was followed by a setback at the beginning of Q3. Nominal exports of goods and services fell 0.9 percent between June and July (adjusted for seasonal factors and calendar irregularities). Goods exports to the EU, which had been performing strongly since the beginning of the year, were down, whereas exports to the US, which have been on a rollercoaster in response to US customs policy, picked up considerably. Overall, this adds up to a slight increase in exports to non-EU countries. The marked increases reported in the first semester puts exports of goods and services since the beginning of the year up 5.0 percent year-on-year. Nominal imports of goods and services were down 5.6 percent between June and July. Looking at the figures for 2026 up to now, however, they are still up 4.5 percent year-on-year. The monthly surplus from trade in goods and services expanded in July, by €7.3 billion to reach €15.8 billion. For the period from January to July, this is a plus of €12.0 billion year-on-year.

Import prices were slightly up again (+0.3 percent) between June and July, following a small decline. Imported intermediate and energy goods, including petroleum and natural gas, were slightly cheaper, but prices for imports of manufacturing goods etc. were up. Export prices also increased by 0.3 percent, resulting in stagnation of the terms of trade after a mild improvement in July. In real terms, the declines in both exports and imports are therefore likely to have been more pronounced.

The latest leading indicators, while volatile, are sending positive signals overall: the ifo export expectations climbed from ‑2.8 to +9.6 points, the index’s highest level since February 2022. Manufacturers of electrical equipment, data processing equipment and electronic and optical products are the most optimistic. The automotive and mechanical engineering sectors are also expecting to expand their exports.

New foreign orders were down 2.1 percent month-on-month and the three-month comparison shows a negative figure (-1.5 percent) for the first time since October 2025. As orders from the eurozone expanded by 12.1 percent, demand from outside the eurozone shrank by 10.1 percent. In both regions, large orders in the category of “other transport equipment” played a deciding role in these developments. Excluding large orders, orders from the eurozone were down 1.9 percent month-on-month, whereas orders from other countries declined by 2.3 percent. 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 significantly elevated energy prices over the longer term, persist, taking their toll on the sales prospects of German exporters. Following a recovery of exports up to the end of the first semester and despite the elevated energy prices and geopolitical uncertainty, the data for July suggest that the momentum slowed down at the beginning of Q3.

Output stifled - large orders propping up orders

At the beginning of Q3, the goods-producing sector recorded a fall in its output: in July, its output fell by 1.1 percent (adjusted for price, calendar irregularities and seasonal variations), after having stagnated in June, as the revised data shows. The less volatile three-month comparison shows that output continued to be up (+0.4 percent), but the year-on-year comparison points to a 1.7 percent decline.

The reason for this overall downwards development was a significant drop in industrial output (-2.2 percent). By contrast, energy production expanded by a healthy +4.7 percent and construction output was also up appreciably by +0.9 percent. Overall, industrial production shrank by a marked 3.3 percent year-on-year. Construction output, however, was 1 percent higher than the levels recorded in July 2025. Energy output was up an impressive 10.9 percent year-on-year. The three-month comparison reveals a stagnation of industrial production (+0.1 percent) at a time when construction output was appreciably up (+0.6 percent) and when energy production expanded considerably (+4.0 percent).

Within the industrial sector, all types of goods saw a decline in output, with intermediate goods contracting the least (-0.2 percent). The downward trend observed in the production of capital goods since the beginning of this year continued in July (-3.4 percent). The recovery of consumer goods production that began in Q2 was interrupted by a significant decline of 2.2 percent.

The positive development in construction in July was driven by all the branches in this sector. Civil engineering once again recorded the most significant rise, climbing by 1.4 percent. Production volumes in this sector developed dynamically, both in the three-month comparison (+4.8 percent) and year-on-year (+5.9 percent). Even though the production index for building work was slightly below the previous year’s level (-0.7 percent), it recently picked up again, rising by +0.4 percent month-on-month. Following two weak months, the finishing trades are recovering and saw growth of 1.0 percent, slightly above the previous year’s level (+0.2 percent).

Within the industrial sector, the picture for July was mixed. Computer equipment, electrical and optical products (+2.7 percent), electrical equipment (+1.6 percent) and mechanical engineering (+1.1 percent) registered appreciable growth in production. In contrast, there were clear falls in the production of motor vehicles and motor vehicle parts (‑9.2 percent), pharmaceutical products (‑5.7 percent), chemical products (‑2.9 percent), metal products (‑2.6 percent) and rubber and plastic goods (‑1.2 percent). Whilst energy-intensive industries significantly increased their output in the first half year of 2026, they dropped by 1.7 percent in July, the second successive fall.

Although output in the goods-producing sector remained relatively robust in Q2 despite rising energy prices, the impact of the ongoing conflict in the Middle East now appears to be weighing more heavily on the sector. In particular, the steep drop in production in the energy-intensive industries, also reflected by the recent decline in sales abroad, suggests that the exceptional upswing following the conflict in the Middle East is wearing off.

At the same time, the order situation improved. In July, new manufacturing orders rose to their highest level since the turn of the year. Adjusted for price, seasonal and calendar variations they expanded by 2.5 percent in monthly terms. This is the third successive rise in a row, with prices reaching their highest level since December 2025. The three-month comparison showed growth of 2.9 percent compared with the previous three months. The volume of orders registered in July rose by 13.1 percent month-on-month after adjustment for workday fluctuations. Once again, this positive development was largely due to large orders. Adjusted for the influence of these, the orders actually decreased by 1.4 percent.

The growth in orders was largely due to a marked increase of 9.1 percent in domestic demand, which has continued its upward trend since May. Orders from abroad fell by 2.1 percent, continuing their downward trend since April. The development of orders has been highly volatile for months, with this latest drop due to a 10.1 percent setback in incoming orders from outside the Eurozone. In contrast, order volume from the Eurozone climbed by 12.1 percent, following a sharp drop in the previous month.

Broken down by category of good, intermediate goods saw the sharpest increase of 4.3 percent, following three successive declines. Capital goods continued their upward trajectory, rising by 2.4 percent. In contrast, consumer goods orders fell by 4.8 percent, after having risen in the two previous months.

Broken down by industry, other transport equipment had the most significant impact on the development of incoming orders, with growth of 126.4 percent. Other key sectors that saw an increase in demand included metal products (+9.2 percent), electrical equipment (+5.1 percent) and pharmaceutical products (+1.5 percent). Textile goods fell significantly (-42.1 percent), with the order volume stabilising after one large order was received. Motor vehicles and motor vehicle parts (-12.5 percent), computers, electrical and optical products (-11.3 percent) and mechanical engineering (-8.4 percent) also recorded sharp falls in incoming orders.

The current high level of incoming orders in the manufacturing sector is due to a revival of domestic demand, particularly for capital goods. This can be partly attributed to public procurement for the modernisation of the Bundeswehr and orders stemming from the special fund for infrastructure and climate neutrality. However, foreign demand remains relatively weak, due to geopolitical conflicts and insecurity.

It is possible that limited navigability of the Rhine since mid-June may have exerted a short-term dampening effect on industrial activity during the summer months. Against a backdrop of well-filled order books, some industries are likely to continue to benefit from government-led investment measures and the AI boom. However, key sectors such as automotive and mechanical engineering are feeling increasing pressure amidst greater competition from abroad. Prospects for a broader revival of industrial activity in the remainder of the year therefore remain slim overall.

Retail revenues appreciably down; leading indicators continue to stabilise at low level

Price-adjusted retail sales (seasonally adjusted, excluding vehicles) fell by a significant 3.4 percent between June and July, with non-food retail performing considerably worse than food retail. Potential reasons for the decline in retail sales could include rising consumer prices, particularly the steep increase in energy costs (driven by higher crude oil prices and the expiry of the fuel discount at the end of June), as well as the start of the summer holidays in most of the Länder. Compared with July 2025, retail sales also dropped, with non-food retail once again seeing a sharper decline. Sales of motor fuels (filling stations) weighed on retail trade, both month-on-month and year-on-year, while internet and mail-order sales also contracted.

Turnover in the hospitality sector declined in June in the monthly comparison, both price-adjusted by 1.2 percent and nominally by 0.9 percent. Compared with the same month last year, real turnover was also lower (-5.1 percent), with revenues falling by 5.2 percent across the first half of the year. In nominal terms, revenues grew by +2.3 percent over the same month last year and 2.1 percent in the first half year over the same period of the previous year.

In August, total new passenger car registrations climbed by 2.1 percent month-on-month and by 2.6 percent over the same month last year. The three-month comparison also shows a rise. Private car sales once again grew significantly in August, whereas companies and the self-employed registered fewer new vehicles. Broken down by propulsion technology, the trend observed in the previous months continued. Whilst new e-vehicles registrations rose sharply, combustion engine cars saw a decline month-on-month, year-on-year and in the three-month comparison. As in the past months, this ongoing shift is likely due to the state funding for e-vehicles, which since May can be applied for retroactively to January by private individuals.

Following very subdued growth in private consumption in Q2 2026, some leading indicators point to an improvement in consumer sentiment, albeit at a low base. According to the GfK forecast, consumer sentiment is expected to rise appreciably by 2.8 points to -26.6 points in September, driven by a marked jump in income expectations. However, this clear improvement has not translated into a greater propensity to purchase, which stagnated month-on-month, while the propensity to save fell by 1.5 points but remains at a high level. Cyclical expectations, which are not captured by consumer sentiment, continue to trend upwards, while remaining significantly below last year’s level. The HDE consumer barometer recovered once again in September following a slight deterioration in August, but remains below the level seen at the beginning of the year. The ifo Business Climate Index improved slightly in August across both the wholesale and retail sectors (excluding vehicles). Both the current business situation and business expectations were rated significantly higher. Selling price expectations fell substantially once again, dropping below the February levels seen before the outbreak of the Iran conflict. Sentiment has continued to stabilise in recent weeks but remains subdued and volatile in overall terms. The negative impact of geopolitical crises, energy-related losses in purchasing power and a continued weakness in labour market growth are likely to weigh on private consumption in Q3.

Energy prices drive renewed inflation

Consumer prices rose by 2.9 percent year-on-year, following an increase of the inflation rate to +2.8 percent in July. This corresponds to a 0.2 percent increase month-on-month. This renewed rise in inflation is driven by a sharp increase in energy costs, which climbed by +10.5 percent – their highest rise since February 2023, up from +8.3 percent in July. Compared to the preceding month, energy prices increased by 1.7 percent. This development likely reflects the renewed increase in crude oil market prices, with Brent crude once again trading at over $90 per barrel. In contrast, price pressure on food items eased. The price level remained virtually unchanged, both compared with August 2025 and July 2026 (+0.1 percent and -0.1 percent respectively). The core inflation rate (excluding food and energy) has recently remained constant at +2.4 percent year-on-year. This can be attributed to service prices, which remained broadly flat at +2.8 percent, compared with +2.9 percent in July. The month-on-month comparison also shows marginal growth (consumer prices excluding food and energy: +0.1 percent; services: -0.1 percent).

Energy prices will continue to be the decisive factor in consumer price trends for the remainder of the year. Future market prices for gas and electricity are projected to continue their upward trend until the end of the year. Oil prices are declining only slowly from their current high of over $100 per barrel. According to ifo price expectations, the majority of the companies surveyed expect further price rises, although the three-month average for this proportion has declined slightly. Overall, inflation is expected to remain close to 3 percent over the next few months.

Summer slowdown in the labour market

The weakness in the labour market continued at the start of Q3. Unemployment once again stood above 3 million and, in seasonally adjusted terms, inched up slightly by 4,000 in August. At the same time, underemployment fell slightly by 3,000. Gainful employment saw another decline in July, dropping by 14,000. Employment subject to social security contributions was virtually unchanged in June in seasonally adjusted terms, but showed a clear year-on-year decline of 73,000. The use of short-time work rose slightly over the preceding month, but fell by 55,000 year-on-year. The number of notifications for short-time work continues its downward trend.

The labour market outlook remains muted for the second half of the year. While improved business sentiment has recently led to a slight increase in the ifo Employment Barometer, the index remains below the expansion threshold. This suggests a slowing in the pace of staff cutbacks in the manufacturing sector over the coming months. In the construction and services sectors, the employment outlook remains only slightly negative, whereas in trade, leading indicators point to further significant reductions. In addition, the IAB labour market barometer currently shows no sign of a decline in unemployment. As demand for labour remains slow, the positive macroeconomic momentum recently observed is likely to take some time to make itself felt on the labour market.

Corporate insolvencies remain at a high level

According to official statistics, a total of 24,867 corporate insolvencies were reported from July 2025 to June 2026 (7.6 percent rise year-on-year). In June 2026, the number of corporate insolvencies rose by 13.6 percent month-on-month to 2,266 cases, up 15.8 percent year-on-year.

The IWH insolvency trend, which is two months ahead of the official statistics, shows that 18,600 insolvencies of partnerships and corporations were filed between September 2025 and August 2026 (8.2 percent rise year-on-year). This is a 9.7 percent month-on-month decline to 1,525 cases, and an 8.7 percent increase compared with August 2025. Based on its leading indicators, the IWH expects insolvency figures to remain high in the coming months.

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