Lars Feld: It is government spending that drives the German economy

Full of hope, economic observers are looking at the recent data on economic development. On the one hand, the Federal Statistical Office has published its estimate of gross domestic product (GDP) for the second quarter of 2026. According to this, GDP (price- and seasonally adjusted) rose by 0.2 percent compared to the previous quarter.

This follows an increase in the first quarter of 0.4 percent, which, according to this revision, is 0.1 percentage points higher. In addition, the current revisions show overall higher growth rates as far back as 2011. Especially for the year 2024, there is now no longer a shrinkage of GDP as assumed according to the previous data, but rather stagnation of 0.0 percent.

On the other hand, the Ifo Institute is reporting the third consecutive increase in its business climate index, primarily due to increased business expectations. The business climate index is an important early indicator and usually precedes the economy by a few quarters. Many economic observers derive robust signs of an upswing from this.

Nevertheless, caution is warranted. The increase in the Ifo business climate index is starting from a very low level. The business situation must first reflect the increased business expectations before an economic recovery can be determined. The recent GDP numbers continue to suggest stagnation in economic activity. This is also clearly shown in the revised numbers.