The Bundesbank reported on Tuesday that the German economy probably registered modest growth in the second quarter, even as higher energy and commodity costs linked to the Middle East war weighed on activity. The central bank highlighted the interplay between a still-resilient industrial sector and steady consumer spending as key factors underpinning the outturn.
Germany - the world’s third-largest economy - has shown limited momentum in recent years, and official forecasts envisage a pickup in 2026 driven by stronger government spending and an ensuing investment upswing. That prospective boost, however, has been partially offset by the war's inflationary effects on energy and commodities, according to the Bundesbank.
Economists surveyed by Reuters expected only a 0.1% quarter-on-quarter increase in economic output for the three months through June.
The Bundesbank noted that "the industrial sector is benefiting from dynamic foreign demand and growing exports," pointing to external demand as a support for manufacturing and related industries. On the domestic front, the bank added that "consumers remained relatively undeterred by high energy prices and the associated loss of purchasing power, likely keeping their consumption spending at least stable."
Officials also flagged potential temporary supports. Shortages in commodity and intermediate goods may have disadvantaged some key Asian competitors more than Germany, while concerns about future scarcities could have prompted some buyers to bring purchases forward, producing a short-term lift in orders and shipments.
Looking ahead, the Bundesbank cautioned that these temporary effects are likely to fade and that the war will continue to act as a drag on activity. The bank said that "provided the situation in the Middle East does not escalate further, the strain caused by the war could be less severe in the third quarter than the average level seen in the second quarter." Nevertheless, it warned that the lingering impact of conflict-driven cost increases will likely weigh on growth.
In June the Bundesbank projected full-year growth of 0.5% for the current year, with an acceleration to 0.8% in the following year. The European Commission and the IMF have slightly higher projections for 2026. The Bundesbank also warned that inflation could pick up further in coming months, and that indirect effects from higher energy costs are expected to materialize gradually.
Context and implications - The Bundesbank's assessment underscores an economy narrowly avoiding contraction in Q2 thanks to export strength and consumer resilience, but it also highlights persistent downside risks from elevated energy and commodity prices tied to geopolitical tensions.