Tuesday, 30 June 2026
Germany’s economic outlook improved modestly in June, although a broad-based recovery has yet to emerge, according to the latest business cycle indicator from the German Institute for Economic Research (DIW Berlin).
The DIW Economic Barometer rose to 96.1 points in June from 94.8 points in May, moving closer to the neutral 100-point level that signals average economic growth.
DIW attributed the improvement partly to the easing of tensions between the United States and Iran, which has reduced immediate geopolitical risks. However, the institute cautioned that uncertainty remains elevated and continues to weigh on economic activity alongside persistent inflation, higher energy costs and disruptions to parts of global supply chains.
The institute also noted that fiscal stimulus introduced by the German government contributed to solid GDP growth during the first quarter of the year, helping to stabilise the economy despite a challenging external environment.
Geraldine Dany-Knedlik, Head of Forecasting at DIW Berlin, said the economy appears to be stabilising but has not yet entered a sustained recovery. She added that stronger momentum is expected only towards the end of the year, provided geopolitical tensions do not intensify again and government stimulus translates into higher investment.
Germany’s manufacturing sector continues to face the greatest challenges. Industrial production remains subdued, while new manufacturing orders fell by 3.8% month-on-month, primarily due to weaker foreign demand. At the same time, the manufacturing Purchasing Managers’ Index remains close to the threshold separating expansion from contraction.
DIW said exports continue to be affected by modest global economic growth, increasing protectionist policies and stronger international competition, particularly from China. Although public investment, including defence spending, may provide some support in the coming months, the institute does not expect a strong industrial recovery in the near term.
The services sector also remains subdued. Retail sales have been weak since the beginning of the year as consumer confidence continues to be constrained by higher fuel prices, a subdued labour market and broader economic uncertainty. While consumer sentiment has shown some signs of improvement, service-sector business surveys remain mixed.
Guido Baldi, economic expert at DIW Berlin, said Germany’s recovery will increasingly depend on domestic investment and structural reforms as geopolitical tensions and protectionist trade policies continue to limit external demand.
