Economic growth accelerates in Q1 2026

Economy accelerates in Q1: Germany's GDP grew 0.3% on a seasonally adjusted quarter-on-quarter basis in Q1, following a 0.2% expansion in the previous quarter. Q1's reading was the strongest since Q1 2025. On a year-on-year basis, economic output increased 0.5% in Q1, unchanged from the previous quarter's reading.

Strong exports mask cracks in German domestic economy: Compared with the prior period's data, the reading for exports of goods and services improved in Q1 (+3.3% on a seasonally adjusted quarter-on-quarter basis vs -1.5% in Q4). In contrast, readings worsened for private consumption (0.0% vs +0.6% in Q4), government consumption (+1.1% vs +1.5% in Q4), fixed investment (-1.5% vs +1.3% in Q4) and imports of goods and services (+0.1% vs +1.0% in Q4). The acceleration was driven primarily by a sharp rebound in exports and strong growth in government spending, which overshadowed weakness in fixed investment and private consumption. Moreover, while exports gained steam, this largely reflected a rebound from the previous quarter’s contraction as well as a significant drawdown of backlogged orders, suggesting underlying external demand was probably still fairly downbeat.

Economy to flatline in Q2: Our Consensus is for the economy to stagnate in the second quarter. Private spending is expected to contract as business and consumer confidence deteriorated further due to higher inflation amid the Iran energy shock. The manufacturing PMI weakened for the second consecutive month in May, pointing to potential headwinds for Germany’s energy-intensive manufacturing sector, the largest in the euro area.

Panelist insight: Commenting on the outlook, analysts at the Kiel Institute for the World Economy stated: “Overall, we estimate that the military conflict in the Middle East will reduce GDP growth by around 0.3 percentage points in 2026 and by around 0.1 percentage points in 2027. Compared with our spring forecast, we now expect somewhat stronger negative effects, particularly in 2027, as the more persistent commodity price increases assumed in the current forecast are likely to be more difficult for households and firms to absorb.”

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