Overview
Germany appears to have eked out modest expansion in the second quarter, according to analysis in the Bundesbank's latest monthly report. The central bank attributed that resilience to a relatively strong industrial sector and continued consumer expenditure, even as the war in the Middle East raised energy and commodity prices and weighed on the economy.
Industry and consumption as stabilizing forces
In its assessment, the Bundesbank pointed to continued dynamism in manufacturing driven by foreign demand and rising exports. The report said that, despite reduced purchasing power from higher energy costs, households "remained relatively undeterred by high energy prices and the associated loss of purchasing power, likely keeping their consumption spending at least stable." That consumer behaviour, together with industrial strength, is the main factor behind the likely modest rise in output for the quarter.
Temporary influences and frontloading
The Bundesbank also highlighted a set of one-off effects that may have supported activity. Shortages of commodities and intermediate goods, the bank noted, probably affected some major Asian competitors to a greater extent, while expectations of future scarcity may have prompted some buyers to bring purchases forward. These factors likely provided a short-term boost to German production and trade flows.
Outlook and constraints
Looking ahead, the Bundesbank said the strain from the conflict could ease in the third quarter relative to the second quarter provided the situation in the Middle East does not escalate further. Nevertheless, the bank warned that the overall picture remains fragile: the temporary factors that lifted activity are likely to dissipate and the war will continue to exert a drag, implying weaker growth beyond the immediate term.
Growth and inflation projections
Earlier in June, the Bundesbank had projected full-year growth of 0.5% for the current year, with a pickup to 0.8% expected in the following year. Other institutions cited in the report were slightly more optimistic for 2026. The Bundesbank added that inflation, already under pressure from elevated energy costs, could accelerate further in the months ahead and that the indirect effects of higher energy prices are likely to materialize gradually.
Market snapshot
Economists polled see only a 0.1% quarter-on-quarter rise in economic output in the three months to June, reflecting how the positive contributions from spending and industrial exports are being offset to a large extent by higher energy and commodity costs associated with the conflict.
Conclusion
The Bundesbank's report paints a picture of an economy that has shown some resilience to external shocks in the second quarter, but it cautions that that resilience may not persist. With one-off supports likely to fade and with inflationary pressures stemming from energy costs potentially intensifying, the near-term outlook for growth remains subdued.