Konjunktur: Deutsche Wirtschaft wächst stärker - Staat tief im Minus

In the first three months of 2026, Germany's economy experienced a slight but notable growth of 0.3 percent compared to the previous quarter, according to the Federal Statistical Office. This marks the third consecutive quarter of growth for Europe's largest economy. The increase was driven primarily by robust export development, with German exports of goods and services rising by 2.0 percent compared to the first quarter of 2026.

However, both private and state consumption expenditures only grew minimally, with 0.1 percent each. Investment in machinery and vehicles also decreased. The deficit, however, remains significant. During the first six months of 2026, the state spent 71.3 billion euros more than it received, which is 36.6 billion euros higher than the same period last year.

The combined deficit of federal, state, local governments, and social insurance amounted to 3.1 percent of economic output, slightly above the 3.0 percent European budget deficit limits. Despite the Iran war, signs suggest the German economy is gaining momentum, fueled by strong exports, high corporate profits, and a construction boom with more housing approvals.

Company morale is also improving. Achim Wambach, president of the Mannheimer Forschungsinstitut ZEW, recently spoke of a "positive trend in expectations." Some economists have revised their economic forecasts upward. While the German economy grew by 0.4 percent in the first quarter, some experts now predict around 1 percent growth for this year, which would be a significant improvement from the 0.2 percent increase in 2025 following two years of economic contraction.

Low water levels on the Rhine pose a new risk to the recovery, as reduced water transport hampers production in industries like chemicals. The Federal Bank recently predicted that the impact of low water levels on major waterways might temporarily dampen the recovery of the German economy in the third quarter. Thus, the economy is expected to grow slightly from July to September.

The crisis from past years - Corona pandemic, Ukraine war, trade disputes, Iran war, and now low water - has consistently derailed the anticipated recovery of the German economy. Yet, there are glimmers of hope. In June, German companies exported goods worth a record 139.3 billion euros overseas, despite higher customs barriers in the key US market, marking the fifth consecutive month of growth for German exporters.

However, high energy prices remain a burden for businesses and consumers. After the end of the fuel rebate, inflation rose by 0.5 percentage points to 2.8 percent in July. Inflation could continue to rise in the coming months as the conflict between the US and Iran remains unresolved and the Hormuz Strait, crucial for global oil and gas trade, is effectively blocked.

The fragile situation remains a challenge for the German economy dependent on raw material imports. Is Germany overspending? The government's debt-financed spending on roads, railways, and defense continues to strain the state finances. Experts expect the deficit rate, which was 2.7 percent last year, to rise above 4 percent in 2027.