The Economic Situation in Germany in October 2026¹

The momentum of the German economy seems to have weakened temporarily in the third quarter of 2026 due to specific exceptional factors, following the recovery in the first half of the year. Although indicators of market sentiment have continued to improve recently, value creation continues to be dampened by flagging global inventory building in energy-intensive goods (which had provided impetus for production and exports, particularly in the second quarter) and restrictions on inland waterway transport resulting from low water levels. Little impetus is expected from the domestic economy in the short term, given the loss of purchasing power due to higher energy prices, ongoing uncertainty, and increased financing costs. Output in the goods-producing sector rose by 2.0% in August compared to July, adjusted for prices, calendar effects, and seasonality. An unusually large expansion in the finishing trades accounted for a major share of this increase. Output in other economic sectors remained subdued. Incoming orders in manufacturing saw a significant drop. This also reflects the waning impetus from energy-intensive industries that had emerged during the first half of the year in the wake of the crisis in the Gulf region. The outlook for the industrial economy remains moderate. Price-adjusted retail turnover (seasonally adjusted, excluding motor vehicles) rose by 1.3% in August compared to the previous month, following a noticeable decline of 3.2% in July. Overall, retail sales decreased slightly compared to August 2025. Private new car registrations recorded significant increases in September, both compared to the previous month and the previous year. New registrations by companies and the self-employed increased slightly from August to September but remained below the previous year's level. Consumer sentiment has weakened again according to the latest figures. Consumer prices rose by 3.3% in September compared to the previous year. In particular, energy prices increased significantly again, by nearly 15% compared to September 2025. Core inflation – excluding the highly volatile prices for energy and food – continues to grow at an elevated level of 2.4%. Food prices are 0.4% higher than in September 2025, and prices for services have risen by 2.7%, although with slightly weakened momentum. Seasonally adjusted unemployment rose by 12,000 people in September. Employment fell noticeably in August, with a decrease of 29,000 people. Employment subject to social security contributions also declined by 12,000 people in July. Given the continued subdued employment prospects, no trend reversal in the labour market is expected in the coming months. The number of corporate insolvencies remains at a high level. According to official statistics, a total of 25,043 corporate insolvencies were reported from August 2025 to July 2026 (an increase of 7.1% compared to the same period the previous year). According to the insolvency indicator of the German Economic Institute in Halle (IWH), which is two months more current, 18,797 insolvencies of partnerships and corporations were reported from October 2025 to September 2026 (+8.2% compared to the same period the previous year).

Growth takes a break in the third quarter due to special factors

The German economy temporarily lost momentum in the third quarter of 2026, but remains on a recovery path. As assumed in the Federal Government's recently published autumn projection, cyclical dynamism decreased slightly in the third quarter following a noticeable upturn in the first half of 2026. Dampening factors included special influences such as the easing of global stockpiling of energy-intensive goods in the wake of the Middle East crisis, as well as ongoing pressures resulting from historic low water levels on German shipping waterways.

Export business, which provided significant growth impulses in the first half of the year, has recently declined. Following the recovery up until mid-year, momentum is expected to be weaker in the third quarter. The primary reasons are the phasing out of advance-purchasing effects resulting from the war in Iran, high energy prices and transport disruptions on inland waterways.

Incoming orders in German industry experienced a significant setback in August, falling by over 10% compared to the previous month after increases in preceding months. This was caused, among other things, by long-standing and highly volatile development in large orders within the "other transport equipment" sector, which includes defence procurement. Excluding large orders, incoming orders nearly stagnated in August, leaving the downward trend since spring unbroken.

Output in the goods-producing sector picked up noticeably in August following a significant drop in the previous month. However, this recovery was largely driven by a strong increase in the construction industry, where the final accounting of a major project in the finishing trades led to substantial growth. In contrast, industrial production remained subdued and, on average for July and August, fell 1.4% below the level of the second quarter. This weakness was particularly pronounced in energy-intensive industrial sectors, which had previously benefited from the global stockpiling of energy-intensive goods. These industries are also likely to be particularly affected by the restricted transport options on waterways due to low water levels.

Conversely, sentiment among German companies points towards a more favourable development as the end of the year approaches. In September, the ifo Business Climate Index rose for the fifth time to its highest level since May 2023. Companies assessed both their current situation and their outlook more positively. The S&P Purchasing Managers' Index increased in September to its highest value since October 2025. In addition to continued expansion of output in the goods-producing sector, service providers are reporting noticeable improvement in their business activity for the first time. The ifo Business Climate Index also indicates a more positive recent development in the services sector, with companies rating current business and business expectations more favourably. The situation for consumer-oriented service providers also seems to be brightening, starting from a very low level: the ifo Business Climate Index for retail (including automotive) rose in September to its highest value since the beginning of the year. While retail sales (excluding automotive) recovered slightly in August compared to the previous month, they remained more than 2% below the previous quarter's level on average for July and August. Consumer sentiment has recently clouded over again: the GfK Consumer Climate Survey fell in October to its lowest value in five months, and the HDE Consumer Barometer also declined significantly in October. In both surveys, income expectations and the propensity to purchase were rated more negatively. Given the inflation, which remains elevated due to energy prices, and falling employment, consumer sentiment among households is unlikely to brighten significantly in the short term.

Global economy continues on growth path

Global industrial production continued to increase in July, with a seasonally adjusted increase of 0.3% compared to the previous month, following a fairly significant expansion of +1.2% in June. Compared to the same month last year, it was up by 2.0%. Regarding future developments, leading indicators continue to point towards a stable global economy. The S&P Global Purchasing Managers' Index for the global economy rose by 0.8 points to 54.3 points in September, indicating a slight expansion compared to the previous month. This increase reflects growth in both industry and the services sector. The Sentix Business Cycle Index for the global economy remains at a high level in October at 13.5 points. While the assessment of the current situation by financial investors is once again slightly more positive thanks to developments in the US and Asian economies, expectations have clouded over somewhat.

Global trade in goods increased by a seasonally adjusted +0.3% in July compared to the previous month, after expanding by 1.8% in June due to the temporary recovery of trade through the Strait of Hormuz. In particular, imports and exports from Latin America as well as US imports increased, while trade in goods in Asia developed more weakly in July. The RWI/ISL Container Throughput Index rose slightly by 0.1 to 141.9 points in August, indicating continued robust development in world trade. Regionally, however, the trend varies: while the North Range Index increased noticeably (+3.4 to 123.9 points), throughput in Chinese ports stagnated at 155.8 points and thus remains below the levels seen before the start of the war in the Middle East. However, according to the International Monetary Fund's Trade Nowcast, ship movement data in August indicate a lower global trade volume in three-month comparison than in the same period last year.

Overall, current forecasts for global economic development continue to assume a robust global economy with growth rates of around 3% in the coming years, despite geopolitical tensions. According to the current forecast by the International Monetary Fund, global trade in goods and services is expected to increase by 4½% this year, given the strong first half of the year; a similar increase is expected for 2027. In addition to investment and trade growth related to the expansion of artificial intelligence, increased investment in the defence sector is also contributing to this.

Recovery of foreign trade stalls

Following a strong first half of the year, export business declined in August for the second consecutive month. Nominal exports of goods and services fell by 2.7% compared to the previous month, seasonally and calendar-adjusted, but remained significantly up by +6.9% in year-on-year terms. Decreases compared to the previous month were recorded for both exports of goods to EU countries (-0.6%) and to third countries (-1.1%). Business with the US continues to fluctuate strongly: after a sharp increase in July, exports fell noticeably again by 6.3% in August. Since the beginning of the year, exports of goods and services are overall 5.2% above the previous year's period due to the significant increases in the first half of the year.

Nominal imports of goods and services stagnated in August compared to the previous month. In year-on-year terms, however, they remained significantly up by 7.7%. Regionally, a differentiated picture emerged for imports of goods: while deliveries from EU states declined slightly, imports from non-EU countries increased by +2.2% compared to the previous month. In particular, imports from the People's Republic of China expanded significantly by +11.0%. The monthly surplus in trade in goods and services shrank by €4.3 to €11.4bn. In the period from January to August, it was therefore 10.4% above the previous year's value.

Import prices rose sharply again in August, up a seasonally adjusted +1.1% compared to the previous month, and were thus 8.3% above the previous year's level. The price increase is still primarily attributable to higher raw material prices, particularly for crude oil and natural gas. Export prices increased overall by 0.6%, resulting in a slight deterioration of the terms of trade. In real terms, exports are therefore likely to have declined slightly more, and imports are also likely to have fallen.

Current leading indicators are mixed but can be viewed as positive overall: the ifo export expectations fell slightly again in September from 9.8 to 8.0, but are still higher than at any point since the beginning of 2022. The decline is mainly due to dampened expectations in the automotive industry. Manufacturers of electrical equipment, data processing equipment, as well as electronic and optical products who benefit from global investments in data centres remain particularly optimistic in September. Expectations in manufacture of machinery have also improved once again. New foreign orders fell significantly in August by -5.4% compared to the previous month and are now also trending significantly downwards in the three-month comparison at -3.4%. Orders from the eurozone declined almost as strongly in August as those from other countries. This is primarily due to a significant drop in large-scale orders. Excluding large-scale orders, orders from the eurozone fell by only 0.2% and from other countries by 0.8% compared to the previous month.

After exports had recovered by mid-year despite increased energy prices and geopolitical uncertainties, the most recent data confirm the expected weaker dynamism in the third quarter. One reason is that possible advance-purchasing effects against the backdrop of the war in Iran, for example, in the export of energy-intensive intermediate products, are likely to subside. Another reason is persistent low water levels on important inland waterways hindering the transport of goods.

Output buoyed by special factor – incoming orders on the decline

Output in the goods-production sector is at its highest level in eighteen months. In August, it increased by 2.0% compared to the previous month, price-, calendar- and seasonally adjusted. Previously, according to revised figures, there had been a reduction of 1.2%. In the less volatile three-month comparison, output followed an upward trend rising +0.4%. Adjusted for working days, it was 2.3% higher than the previous year's level.

In August, construction production was significantly up (+9.3%) and industrial production slightly up (+0.6%). In contrast, energy production declined slightly by -0.4%.

Developments across all branches of the construction industry were positive in August. The production index for the finishing trades rose by +13.1% to its highest level since December 2020. The completion of a major energy infrastructure project is likely to have played a role here. Structural and civil engineering continued on a recovery path (+2.0% and +0.4% respectively), as has been the case since spring.

Within industrial manufacturing, the production volume of intermediate goods declined slightly for the fourth time in succession (-0.2%). Meanwhile, capital goods producers were able to recover part of their slump in July (+1.2%). Consumer goods producers also saw a slight increase (+0.6%) following the previous setback.

The trend in the industrial sectors was uneven: growth was recorded in areas such as machinery manufacture (+5.3%), fabricated metal products (+3.5%), and electrical equipment (+1.2%). Conversely, manufacturers of motor vehicles and parts (-5.4%), chemical products (-1.2%), and data processing equipment as well as electrical and optical products (-2.6%) recorded declines. The boom in energy-intensive industries, which led to significant production expansions in the corresponding branches in the first half of the year, does not seem to be continuing, with a third consecutive reduction (-0.5%).

The increase in output in the goods-production sector was surprisingly strong recently. A large part of this is due to the extraordinary expansion in the finishing trades, which accounts for about one percentage point of the increase. Independent of this special effect, the rest of the construction sector is continuing its recovery path despite the increased interest rate level. This is supported particularly by public contracts for infrastructure modernisation. In contrast, the industrial economy remains subdued. While plant modernisations and summer holidays in the automotive sector caused dampening effects, the momentum from energy-intensive industries is waning in the wake of the crisis in the Gulf region. Accordingly, foreign sales have seen little dynamism in recent months given the high competitive pressure.

This circumstance is also reflected in the trend in orders: incoming orders were 10.6% lower than in the previous month. Due to the strong increases in June and July, there was nevertheless a rise of 1.3% in the three-month comparison. Compared to the same month last year, the order volume was also 2.7% higher, adjusted for working days. The influence of large-scale orders is driving the strong monthly fluctuations. If these are excluded, incoming orders in industry nearly stagnated in August compared to the previous month (-0.1%). In the three-month comparison, a significant decline of 2.6% was evident in this sector.

Both domestic and foreign demand have recently declined. Domestic incoming orders collapsed by -17.3% in August compared to the previous month after three consecutive strong increases. This was caused by the sharply declining domestic demand for capital goods (-28.6%), which had previously expanded considerably due to large-scale government contracts. Foreign orders also declined noticeably (-5.4%). Not only did orders from outside the eurozone decline significantly once again (-5.5%), but orders from within the eurozone also fell by 5.4%.

In commodities, capital goods producers registered the strongest decline in orders (-15.3%), after their sales had been trending upwards since May. However, excluding large-scale orders, demand for capital goods developed positively (+2.7%). Producers of intermediate goods reported an order volume 2.6% lower in August than in the previous month, thus losing about half of the preceding increase. Demand for consumer goods also cooled further (-7.3%) after a significant setback at the beginning of the third quarter.

Order volumes in individual economic sectors were predominantly in decline. Increased incoming orders were reported particularly by manufacturers of motor vehicles and parts (+2.8%), after these had previously fallen sharply. The most significant collapse in demand was recorded in "other transport equipment” sector (-61.5%), although its orders had more than doubled in July. Fewer orders were also registered by manufacturers of electrical equipment (-5.3%), fabricated metal products (-3.5%), and chemical products (-1.5%). Manufacturers of machinery (-4.4%), metal producers (-3.9%), as well as manufacturers of data processing equipment, electrical and optical products (-2.0%) also reported fewer orders. Nevertheless, order volumes in these industries were significantly higher than in the same month last year.

Due to the increased importance of public procurement, incoming orders continue to be very volatile. At the same time, industrial demand at the beginning of the year was also characterised by special effects related to the war in the Middle East, the impact of which has noticeably diminished in the third quarter. Although new orders in industry were weak in August and structural competitiveness problems persist, the order situation has recently improved significantly, particularly in sectors benefiting from the AI boom and government procurement.

However, the prospects for a broad-based recovery in the industrial economy remain subdued. On the production side, a reversal of the special development in the finishing trades is to be expected for September.

Retail revenues up; leading indicators mixed at low level

Price-adjusted retail turnover (seasonally adjusted, excluding motor vehicles) rose by 1.3% in August compared to the previous month, following a noticeable decline of 3.2% in July. Both food and non-food trade increased. The latter had recorded a significant drop of 4.3% in July. Compared to August 2025, overall retail sales declined slightly, with non-food trade slowing growth. Trade in motor fuels (filling stations) remained unchanged compared to the previous month at the current margin, following a drop of 8.1% in July, and declined significantly again compared to the previous year.

Turnover in the hospitality industry increased in July compared to the previous month by 1.5% in real terms and 1.3% in nominal terms. Compared to the same month last year, however, real revenues were significantly lower at -4.0%, while nominal terms showed a plus of 3.0%.

Overall new registrations of passenger cars rose notably by 7.6% in September compared to the previous month. There was also an increase in the three-month and year-on-year comparisons, at +3.9% and +9.0% respectively. New registrations by employees and non-employed persons increased significantly. While new registrations by companies and the self-employed rose compared to the previous month, they declined in the three-month and year-on-year comparisons. By drive type, registrations of electric vehicles increased, while those for petrol and diesel engines declined. The primary drivers of this development are the government subsidies for electric cars, which private individuals have been able to apply for since May, with retroactive effect back to January 2026, and the persistently high fuel prices.

Following the stabilisation of leading indicators in recent months, the latest figures show a dichotomy between a clouded consumer sentiment on one hand and more optimistic retailer assessments on the other. According to GfK forecasts, consumer sentiment will fall sharply by 3.8 points to -30.6 pts in October, dampened by a reversal in income expectations of 16.7 points and an increased propensity to save. The latter climbed to the level seen during the financial and economic crisis of 2008. Economic expectations, which are not part of the consumer climate, increased slightly and recorded their fifth consecutive rise. The HDE Consumer Barometer, published in early October, has also fallen noticeably and is moving significantly below the previous year's level. In contrast to the declining consumer indicators from GfK and HDE, the ifo Business Climate Index for retail (including automotive) rose in September to its highest value since January. In particular, the assessment of the business situation, as well as the expectations indicator, brightened. Selling price expectations rose noticeably again after a significant decline in the previous month. The situation is also brighter when the trade in vehicles is disregarded.

On the basis of the latest figures, the sentiment picture is mixed and generally at a weak level. Concerns about losses in purchasing power against the backdrop of persistently high consumer prices and weak labour market developments are acting as a damping factor, while hopes for a continued economic recovery in Germany seem to be consolidating and could provide positive sentiment impulses later in the year.

Energy prices drive inflation higher

Consumer prices rose by 3.3% in September compared to the previous year. In particular, energy prices increased significantly again, by almost 15% compared to September 2025. Core inflation – excluding the highly volatile prices for energy and food – remained unchanged at 2.4%. Food was 0.4% more expensive than in 2025; prices for services rose by 2.7%, albeit with slightly diminishing momentum.

Producer prices showed their highest increase since April 2023 in August, at 4.6%. Prices for imported goods rose significantly by 8.3% in August; in particular, prices for energy imports increased substantially by +43.0%.

The rise in energy prices remains clearly noticeable in consumer prices, and the pass-through to downstream stages continues. According to ifo price expectations, slightly more companies overall planned to increase their prices in September. The ifo price expectations rose slightly to 22.7 points, from 21.4 in August. This indicates that the higher energy prices are increasingly being passed on in selling prices. The reduction in the energy tax on fuels, which is being reintroduced from October, is expected to dampen inflation by approximately 0.1 percentage points in the final quarter. Nevertheless, consumer prices are likely to continue rising into the winter, primarily as a result of persistently high energy prices. For instance, the average price of a barrel of Brent crude oil in September was 102 US dollars. However, futures markets are pricing the barrel lower again at 98 US dollars for December 2026 and 83 US dollars for September of next year. In contrast, gas prices are likely to remain elevated for somewhat longer going by the futures markets.

Employment falls, sentiment indicators stabilise

The trend of declining employment continues in the third quarter. Seasonally adjusted employment recorded a decrease of 29,000 people in August, placing it 0.5% below the previous year's level. Additionally, the number of employed persons in the preceding months was revised slightly downwards. Employment subject to social security contributions also declined by 12,000 people in July. This trend is likely to persist until the end of the quarter. For instance, unemployment increased by 12,000 people in September. This was also caused by a slight decrease in underemployment. The use of short-time work in July is expected to have declined both compared to the previous month and in year-on-year terms. The trend for short-time work notifications continues to decline.

Leading indicators have recently stabilised at a low level. The ifo Employment Barometer recorded its third consecutive increase in September, reaching its highest value since May 2025. Accordingly, job cuts in the manufacturing sector are likely to slow down. In the services sector and the construction industry, survey results point towards stagnating employment. The unemployment component of the IAB Labour Market Barometer has also improved noticeably recently. The increase in unemployment is therefore also likely to be attributable to the higher statistical recording of benefit recipients raising children following the citizen’s benefit (Bürgergeld) reform. Given that the chances for the unemployed to move into employment remain low, neither a decrease in unemployment nor an increase in employment is evident for the coming months.

Corporate insolvencies remain at a high level

According to current figures from the Federal Statistical Office, the number of corporate insolvencies rose by 4.7% in July 2026 compared to the previous month, reaching 2,373 cases; compared to July 2025, this figure is 8.0% higher. In the first seven months of 2026, 6.9% more corporate insolvencies were filed than in the same period of the previous year.

According to the IWH insolvency indicator, which is more current by two months, there was an increase in insolvencies of sole proprietorships and corporations to 1,666 cases in September 2026, up 9.2% compared to the previous month, and an increase of 13.4% compared to the same month last year. In total, 18,797 insolvencies were reported in the last twelve months from October 2025 to September 2026 (an increase of 8.2% in year-on-year terms). The number of insolvencies of sole proprietorships and corporations declined slightly in the third quarter of 2026 compared to the previous quarter (-2.3%), but was simultaneously at the second-highest level since 2005. Based on its own leading indicators, the IWH expects a further easing by the end of the year.

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¹ This report is based on data that were available as of 13 October 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.