Tuesday, 15 September 2026
Germany’s economy showed clearer signs of improvement during the first half of 2026, expanding in both quarters as stronger exports helped lift overall activity. The recovery remained uneven, however, with industrial production showing limited progress, household spending barely increasing and construction continuing to face difficult conditions.
Real GDP increased by 0.4% during the first quarter compared with the final three months of 2025 and expanded by a further 0.3% in Q2. Compared with a year earlier, economic output was 0.8% higher during the first quarter and 1.0% higher in the second. The improvement follows several years of weak economic performance, with Germany contracting in 2023, recording little change in 2024 and achieving only modest growth during 2025.
International trade was an important contributor to the stronger first-half performance. Exports of goods and services increased by 3.7% year-on-year in real terms during Q2, while imports rose by 2.5%. Goods exports increased by 5.0%, supported by stronger activity across areas including chemicals, electronics, electrical equipment and other transport equipment.
Across the first six months of 2026, Germany exported goods worth approximately €816.6 billion, an increase of 3.7% compared with H1 2025. Imports grew by 4.4% to €711.6 billion, leaving a trade surplus of around €105 billion. June was particularly strong, with seasonally and calendar-adjusted goods exports reaching approximately €139.3 billion, 0.9% above May and 6.6% higher than a year earlier.
The improvement in international demand is particularly important for Germany because manufacturing remains a major component of the economy. German industry has spent several years adjusting to higher energy costs, changing global supply chains, weak demand in important markets and substantial restructuring within the automotive sector.
Industrial production nevertheless remained subdued at the end of H1. Output increased by only 0.2% between May and June and remained 0.1% below its level in June 2025. Across April to June, production was 0.7% higher than during the preceding three-month period, indicating some improvement without signalling a broad industrial rebound.
Manufacturing orders provided a somewhat stronger indication of potential future activity. New orders increased by 3.1% between May and June and were 6.5% higher than a year earlier. Large individual contracts contributed significantly to the headline result, however, and when these were excluded, orders declined by 0.5% from May.
The difference between stronger orders and relatively flat production highlights the incomplete nature of Germany’s manufacturing recovery. Demand has strengthened in parts of industry, but this has not yet translated into sustained growth across the wider manufacturing base.
Domestic consumption also remained restrained. Private household spending increased by just 0.1% during the second quarter compared with Q1 and was only 0.1% higher than a year earlier. Consumer demand therefore contributed relatively little to the improvement in the overall economy during the first half.
Construction continued to face difficult conditions. Investment in construction was lower than a year earlier during Q2, extending the challenging environment for residential and commercial development. Building costs, financing conditions and uncertainty surrounding project economics have continued to restrict new development activity.
Inflation increased during the spring before moderating towards the end of H1. Consumer prices were 2.9% higher year-on-year in April and 2.6% higher in May before annual inflation eased to 2.3% in June.
Energy prices increased by 3.4% year-on-year in June, considerably below the 10.1% rise recorded in April and the 6.6% increase in May. Motor fuels nevertheless remained 11.3% more expensive than in June 2025. Food prices increased by only 0.4%, while services were 3.1% more expensive. Inflation excluding food and energy stood at 2.5%.
German companies were also dealing with higher costs for imported products. Import prices increased by 6.1% year-on-year in June, while export prices rose by 3.5%. Higher energy and intermediate-product costs were important contributors to the increase in import prices, maintaining pressure on businesses dependent on international supply chains.
Germany’s public finances are simultaneously undergoing a significant shift as the government increases expenditure. The general government deficit reached approximately €71.3 billion during the first six months of 2026, around €36.6 billion more than during the corresponding period of 2025. The H1 deficit was equivalent to 3.1% of GDP.
Government revenue increased during the first half, but expenditure rose considerably faster. Higher public expenditure is expected to provide increasing support to the economy as Germany directs additional resources towards infrastructure, defence and other investment programmes.
This change in fiscal policy could become increasingly important for economic activity during the coming years. Greater spending on transport networks, energy infrastructure, defence capacity and modernisation has the potential to generate additional demand at a time when private-sector investment remains cautious.
The European Commission expects the German economy to expand by approximately 0.6% across 2026 following growth of only 0.2% during 2025. Growth is forecast to strengthen to around 0.9% in 2027 as higher public expenditure and gradually improving domestic conditions provide additional support.
Greater government spending will also affect Germany’s fiscal position. The Commission expects the budget deficit to reach approximately 3.7% of GDP during 2026, while public debt is projected to increase from around 63.5% of GDP in 2025 to approximately 65.8% this year.
For Germany’s commercial property sector, the economic environment has improved compared with the prolonged period of stagnation, although the first-half figures do not yet indicate a strong cyclical recovery. Higher exports and improving manufacturing orders provide a better backdrop for industrial and logistics property, while additional infrastructure and defence expenditure could support property demand in regions benefiting directly from new investment.
The weakness in construction is also becoming increasingly relevant to the property market. Reduced development activity could restrict future additions to modern building stock in some locations, particularly where financing costs and development economics have already resulted in projects being delayed or cancelled.
Germany entered the second half of 2026 with economic conditions stronger than a year earlier. GDP expanded during both quarters, exports increased and manufacturing orders improved. At the same time, industrial output remained broadly flat, household consumption barely grew and construction continued to struggle.
The next stage of the recovery will depend on whether the improvement spreads more widely through the domestic economy. Stronger consumer demand, private investment and industrial production would provide clearer evidence that Germany is moving beyond several years of weak performance. For now, H1 2026 represents progress, but the recovery remains uneven and increasingly dependent on the combination of international demand and higher public expenditure.
Source: CIJ.World Research & Analysis Team
