PUBLISHED June 28, 2026
According to the German Federal Ministry for Economic Affairs and Energy (BMWE), Germany’s economy is navigating a challenging spring amid the ongoing conflict in the Middle East and the significant energy and raw material price increases that have followed.
A Fragile Stabilization After a Turbulent Start
Germany’s economy in spring 2026 is still heavily influenced by the effects of the war in the Middle East and the sharp rise in energy and commodity prices. While industrial sentiment has shown some signs of stabilization, momentum in the services sector has visibly weakened. Consumer-facing industries are bearing the brunt of purchasing power losses and heightened uncertainty, with a meaningful recovery expected only in small steps — and heavily dependent on how the conflict evolves.
Industrial Output Stagnates, Construction Offers a Bright Spot
After four consecutive monthly declines, industrial production stagnated in April compared to the previous month. The construction sector, however, continued its recovery from a weather-related slump at the start of the year, posting a further notable gain of 2.4 percent. Among industrial sub-sectors, vehicle manufacturing and petroleum processing registered the steepest declines, while pharmaceuticals, chemicals, and metal production posted modest gains.
New Orders Pull Back as Investment Demand Softens
Manufacturing orders fell by 3.8 percent in April compared to the previous month, following a strong rise in March that had partly been driven by companies front-loading purchases ahead of expected supply shortages caused by the blockade of the Strait of Hormuz. Orders from the eurozone dropped sharply, while demand from non-EU countries held up slightly. The longer-term three-month trend pointed clearly downward, particularly for capital goods.
Global goods trade declined by 2.1 percent in March compared to the previous month — the first drop since August 2025 — driven by the effective closure of the Strait of Hormuz, which caused a sharp fall in trade across the Middle East and Africa. Germany’s own exports remained on an upward path in April, rising 2.7 percent month-on-month, though leading indicators have since deteriorated. Export expectations among manufacturers — particularly in energy-intensive sectors and the automotive industry — have turned negative heading into the summer.
Global goods trade declined by 2.1 percent in March compared to the previous month — the first drop since August 2025 — driven by the effective closure of the Strait of Hormuz, which caused a sharp fall in trade across the Middle East and Africa. Germany’s own exports remained on an upward path in April, rising 2.7 percent month-on-month, though leading indicators have since deteriorated. Export expectations among manufacturers — particularly in energy-intensive sectors and the automotive industry — have turned negative heading into the summer.
Retail Sales Dip, but Consumer Sentiment Tentatively Stabilizes
Inflation-adjusted retail sales (excluding vehicles) fell by 0.3 percent in April compared to the previous month, and were also down 0.3 percent year-on-year. Real revenues in the hospitality sector dropped 5.2 percent compared to the same month a year earlier. A modest uptick in consumer confidence indices — including the GfK consumer climate and the HDE consumption barometer — suggests sentiment may have bottomed out, though it remains fragile and at a low level. Private car registrations were a relative bright spot, with purchases by individuals up significantly year-on-year, partly boosted by a new federal subsidy for electric vehicles targeting low- and middle-income buyers.
Consumer price growth slowed to 2.6 percent in May, down from 2.9 percent in April, as energy price inflation moderated to 6.6 percent from 10.1 percent the month before — partly thanks to a temporary fuel tax reduction. Food prices rose only marginally at 0.4 percent, while services prices increased by 3.1 percent, pushing core inflation slightly higher to 2.5 percent. The ministry expects elevated energy and raw material costs to continue filtering through the pricing chain in the months ahead.
The number of unemployed fell by a seasonally adjusted 12,000 in May, though this was partly a reversal of a holiday-related rise the month before. Year-on-year, unemployment was up by 31,000 persons. Employment continued to edge lower in April, and the broader trend in social insurance-covered employment remained negative. On the insolvency front, the IWH insolvency tracker recorded 1,518 cases among incorporated companies in May — a 15 percent drop from April, but still 3 percent above May 2025 levels. The institute expects insolvency numbers to remain similarly elevated in June.
Inflation-adjusted retail sales (excluding vehicles) fell by 0.3 percent in April compared to the previous month, and were also down 0.3 percent year-on-year. Real revenues in the hospitality sector dropped 5.2 percent compared to the same month a year earlier. A modest uptick in consumer confidence indices — including the GfK consumer climate and the HDE consumption barometer — suggests sentiment may have bottomed out, though it remains fragile and at a low level. Private car registrations were a relative bright spot, with purchases by individuals up significantly year-on-year, partly boosted by a new federal subsidy for electric vehicles targeting low- and middle-income buyers.
Consumer price growth slowed to 2.6 percent in May, down from 2.9 percent in April, as energy price inflation moderated to 6.6 percent from 10.1 percent the month before — partly thanks to a temporary fuel tax reduction. Food prices rose only marginally at 0.4 percent, while services prices increased by 3.1 percent, pushing core inflation slightly higher to 2.5 percent. The ministry expects elevated energy and raw material costs to continue filtering through the pricing chain in the months ahead.
The number of unemployed fell by a seasonally adjusted 12,000 in May, though this was partly a reversal of a holiday-related rise the month before. Year-on-year, unemployment was up by 31,000 persons. Employment continued to edge lower in April, and the broader trend in social insurance-covered employment remained negative. On the insolvency front, the IWH insolvency tracker recorded 1,518 cases among incorporated companies in May — a 15 percent drop from April, but still 3 percent above May 2025 levels. The institute expects insolvency numbers to remain similarly elevated in June.
