GDP grows 0.3 percent in first quarter
War in Iran set to tangibly curb economic recovery
▪ Investment activity down at the start of the year. Construction investment decreased due to severe weather conditions, while investment in plant and equipment and other assets continued to rise
▪ Private consumption remained upwards at the start of the year. With an increase of 0.8 percent, growth was nonetheless considerably weaker than last year.
▪ The manufacturing sector had a weak start to the year with production 1.4 percent lower than in the previous quarter. Production was already pointing down before the war in Iran.
German economy
Economic output stronger than expected at start of year
Germany’s gross domestic product (GDP) was 0.3 percent higher in the first quarter 2026 than in the fourth quarter 2025 following price, calendar and seasonal adjustment, according to the German Federal Statistical Office, confirming the preliminary figures published on 30 April 2026. Year on year, economic output was also positive, with real GDP 0.5 percent higher in the first quarter 2026 (after calendar adjustment +0.4%).
For the first time in a long time, Germany’s economic growth was higher than in the EU overall, where GDP only nudged up 0.2 percent in the first quarter 2026. Among the other major EU member states, Spain recorded the highest growth at 0.6 percent. Italy matched the EU average (+0.2%), while France stagnated.
Source: Federal Statistical Office
In the first quarter 2026, Germany’s economic output was generated by a workforce of around 45.6 million employees. That was 157,000 or 0.3 percent less people in employment than one year ago. The total number of hours worked by all employees remained unchanged according to preliminary figures from the German Institute for Employment Research, the IAB.
On the income side of GDP, gross value added increased by 0.5 percent overall in the first quarter 2026 in real terms compared to the same quarter last year. The primary sector driving gross value added up at the start of the year was public service providers, education and healthcare which expanded 1.8 percent. The heavyweight sector of retail, transport and hospitality, only increased gross value added by a below-average 0.3 percent. While information and communication (+2.0%), other
Growth in real GDP in percent
service providers (+0.7%) and property (+0.6%) expanded their activity more than average, corporate service providers tread water (+0.1%). Gross value added also remained flat in the manufacturing sector, inching up a mere 0.1 percent. Financial and insurance service providers saw their activity fall 1.2 percent. The construction sector recorded a steeper drop of 4.4 percent on account of the harsh winter.
On the expenditure side of GDP, private consumption expenditure was up year on year for the seventh time in a row following price adjustment. The increase was slim though and, at only 0.8 percent, considerably weaker than on average during 2025 (+1.3%). In the first quarter 2026, consumers spent more particularly on clothing and shoes (+3.7%), furniture, household goods, repairs and maintenance (+3.2%) and on information and communication (+2.9%). Spending was down more than two percent on leisure, entertainment and culture and on healthcare. Consumers only spent slightly more on food and non-alcoholic drinks (+1.5%), hotel and restaurant services (+1.2%) and housing, water, electricity and energy (+0.3%). Expenditure was down on transport (-1.8%) and alcoholic beverages, tobacco and drugs (-1.9%). Public consumption expenditure increased by a sizeable 3.5 percent in the first quarter 2026, which represented the biggest rise seen here since the first quarter 2022 (+3.7%).
After two quarters of growth, gross fixed capital formation turned down again in the first quarter 2026, dropping 0.8 percent year on year in real terms. The main downward factor was the steep 3.3 percent drop in construction investment. All segments of the industry were downward. While investment in residential construction decreased for the fourth year in a row (-3.3%), investment in nonresidential construction was also down in the first quarter 2026 due to the cold winter (-3.2%). Investment in plant and equipment increased by a lean 0.5 percent. Investment in machinery and equipment declined (-0.8%), while acquisitions of vehicles rose 3.4 percent. Investment in other assets (patents, licences) was up by a clear 3.6 percent year on year.
Exports of goods and services dropped 0.3 percent in the first quarter 2026 after price adjustment. This was the seventh consecutive drop. While goods exports expanded year on year for the second time in a row (+0.4%), the export of services were down on last year by a considerable 2.4 percent. Going the other way, imports expanded 1.7 percent at the start of the year. The import of goods grew (+3.8%), while the import of services contracted (-3.2%). Overall, net exports made a negative contribution to growth of 0.7 percentage points.
Foreign trade among individual countries
In the first quarter 2026, goods exports were 8.1 billion euros or two percent more than one year ago, according to the foreign trade statistics of the German Federal Statistical Office. In absolute terms, exports expanded particularly to Germany’s neighbouring countries Switzerland (+2.44 billion euros; +12.9%) and France (+2.35 billion euros; +8.1%). Exports rose more than two billion euros to both Austria (+2.12 billion euros; +10.8%) and Poland (+2.11 billion euros; +8.7%). Exports were also up considerably year on year to the Czech Republic (+1.21 billion euros; +9.2%), the Netherlands (+964 million euros; +3.4%) and Spain (+903 million euros; +6.1%). Outside the EU, exports to the United Kingdom (+1.74 billion euros; +8.7%) were particularly strong. In contrast, trade declined especially with the United States (-4.98 billion euros; -12.1%) and China (-3.76 billion euros; -12.5%). Exports were down by a good fifth in the case of Japan (-1.11 billion euros; -18.4%) and Taiwan (-604 million euros; -22.6%). Exports to Russia dropped 125 million euros (-6.8%) down to 1.70 billion
euros. Compared to the first quarter 2022, exports were 69 percent lower. Goods exports to Ukraine decreased 267 million euros (-11.9%) in the first quarter 2026, down to 1.98 billion euros.
German exports and imports in Q1 2026 in selected countries
Year-on-year change
Sources: Federal Statistical Office, own calculations
In the first quarter 2026, goods imports to Germany increased 7.47 billion euros or 2.2 percent year on year. In nominal terms, the steepest increase was in imports from China (+2.61 billion euros; +12.4%), followed closely by imports from France, which rose 2.54 billion euros (+15.6%). Goods imports increased by well over one billion euros from Singapore (+86.9%) and Austria (+7.7%). Imports from South Africa expanded by a good third or 823 million euros. Among EU partner countries, the value of imports from Belgium (+5.3%) and the Czech Republic (+4.0%) was 600 million euros higher year on year in both cases. Imports from the United States only climbed a moderate 1.9 percent. Going the other way, imports from gas suppliers Norway (-1.17 billion euros; -14.0%) and the Netherlands (-728 million euros; -3.0%) decreased substantially. Goods imports were also downward from Poland (-713 million euros; -3.5%), Switzerland (-940 million euros; -6.4%) and the United Kingdom (-632 million euros; -5.9%). Imports from Russia contracted by just under one fifth, down to 271
euros. Compared to the level of imports four years ago, imports were 97.8 percent lower. Imports from Ukraine hardly changed, amounting to 779 million euros (-0.4%).
Labour market: Employment falling gradually
According to preliminary data from the Federal Statistical Office, the number of people in employment within the country dropped by 5,000 in April 2026 after seasonal adjustment, following a decrease of 23,000 in March and 16,000 in February. Compared to April 2025, the number of people in employment was down by 189,000 or 0.4 percent to 45.75 million. Compared to the record level reached in November 2024, there were 491,000 less people in employment.
Employment subject to social security contributions also increased slightly, according to the latest figures. Federal Employment Agency projections for March 2026 (latest figure available) put the number of people in employment subject to social security contributions at 34.81 million. That was 9,000 people more than in the previous month following seasonal adjustment but 74,600 less people or 0.2 percent less than one year ago. The number of people in full-time employment subject to social security contributions in March 2026 was 239,000 lower year on year, down to 23.87 million, while the number of people in part-time employment subject to social security contributions totalled 10.94 million, which is 165,000 more than one year ago.
adjusted in million
Source: Federal Employment Agency
The trends among other forms of employment were mixed. The number of self-employed people including contributing family members decreased by 15,000 in the first quarter 2026. Year on year, self-employment was also down, dropping by 37,000 (-1.0%) to 3.64 million The number of people exclusively in marginal employment was 5,000 lower after seasonal adjustment, according to preliminary Federal Employment Agency projections. At 4.03 million, that was 83,000 less than one year ago. The number of unemployed people in May was 3.01 million, which was 76,600 or 2.6 percent less than one year ago. After seasonal adjustment, unemployment was up 20,000 compared to March
after a rise of 3,000 compared to February. The unemployment rate in May 2026 was 6.3 percent as calculated by the Federal Employment Agency or 3.8 percent according to the ILO definition.
Industry receives more orders at the start of the year
In the first month after the outbreak of the war in Iran, incoming orders increased again despite the weak start to the year. More specifically, incoming orders for the manufacturing sector increased 5.0 percent in March 2026 compared to the previous month and following seasonal and calendar adjustment, after an upwardly revised increase of 1.4 percent in February (up from 0.9%). Excluding large orders, incoming orders in March followed a similar upward trend after seasonal and calendar adjustment (+5.1%). Year on year, (compared to March 2025), demand was also up by a robust 6.3 percent.
The March figures round off the figures for the first quarter 2026 and show that incoming orders were 4.1 percent below the high level recorded in the fourth quarter of 2025 following seasonal and calendar adjustment. Year on year, orders were nonetheless 3.5 percent higher.
Looking at the origin of orders in the first quarter 2026, domestic orders were 10.1 percent down on the previous quarter. Year on year, orders were nonetheless up (+3.6%). Foreign orders remained steady compared to the previous quarter, nudging up a slight 0.3 percent. Compared to the first quarter 2025, orders from abroad were up by 3.4 percent. Orders from third countries recorded an increase of 1.5 percent (year on year: +2.3%), while orders from the euro area decreased 1.3 percent (year on year: +5.1%)
New orders, manufacturing
Change over previous year, two-month-average, in percent (right axis)
Volume index in manufacturing, two-month-average, seasonally adjusted (left axis)
Change over previous quarter (q-o-q), in percent
Source: Federal Statistical Office
In the first quarter 2026, the performance among the main groups of industrial goods after seasonal and calendar adjustment compared to the fourth quarter 2025 was as follows. Among the producers
of intermediates, incoming orders increased 1.1 percent. Orders from at home were up 1.5 percent, which was double the rise seen in foreign orders (+0.7%). Producers of capital goods, on the other hand, registered a drop in orders of 7.7 percent. While demand from abroad (-0.3%) remained flat, domestic orders contracted by a hefty 18.7 percent. This large drop was so pronounced because of the strong increase in orders seen in the previous quarter. Year on year, orders here were up 5.9 percent. Among consumer goods producers, orders were up 2.3 precent which was the third consecutive quarter of expansion. While orders from at home tread water (+0.1 %), orders from abroad were up by a healthy 3.7 percent.
Towards the end of the first quarter 2026, incoming orders recovered from their considerable slump in January. In March, orders were up across many industries. The producers of electrical equipment and data processing equipment, electronic and optical products all recorded increases in the double digits in March. Machinery manufacturing saw orders rise a good seven percent. The upward trend was only partially reflected in the sentiment indicators. The ifo business climate index dropped considerably in March, while the purchasing managers’ index recorded another clear rise. This could be an indication that companies only stepped up their order activity to counteract possible shortages in supply going forward.
Order books in industry only filling up slightly
According to ifo Institute figures, the reach of orders in hand in the manufacturing sector was at 3.7 production months at the start of the second quarter 2026, which is unchanged compared to the previous quarter but 0.1 production months higher than one year ago. Among the individual industrial sectors, the reach of orders in hand for producers of intermediates was lower than in the first quarter 2026, but nevertheless higher year on year for the second consecutive quarter. Among capital goods producers, the reach of orders slipped 0.1 down to 4.9 production months and was also lower year on year for the second quarter in a row. Only consumer goods producers saw their order backlog grow at last count. At 2.2 production months, it was 0.3 months higher than at the start of the year and compared to one year ago.
The most recent figures from the Federal Statistical Office point to a slight pick-up. The order backlog in the manufacturing sector after price adjustment in March 2026 was 1.6 percent higher than in February following seasonal and calendar adjustment. This was the thirteenth consecutive rise. The upward trend in the order backlog also continued year on year (+8.4%). Unfinished orders from at home were 1.4 percent higher than in the previous month while orders from at home increased slightly more, up 1.7 percent. The trends among the main industrial sectors show a different picture to the ifo figures. While the order books among producers of capital goods and intermediates filled out slightly, the orders books of consumer goods producers slimmed down.
Industrial production starts year off with robust rise
According to preliminary figures from the Federal Statistical Office, industrial production (excluding energy and construction) was 0.8 percent lower in March 2026 than in February following seasonal and calendar adjustment. Production in February had also been lower than in January, down by 0.3 percent after a downward revision of the preliminary results (initially 0.0%) This was the fourth month of consecutive downward production quarter on quarter. Year on year, industrial activity was down more substantially (-3.6%). While the energy industry curbed its seasonal and
calendar adjusted production by 4.0 percent quarter on quarter, the construction industry stepped its activity up by 1.9 percent. All in all, the output of the production sector was 0.7 percent lower than in February 2026. Compared to March 2026, the decrease in production was more pronounced at minus 2.8 percent.
Output in the goods-producing industry
Sources: Federal Statistical Office, own calculations
Combined with the March figures, which are still provisional, performance in the first quarter 2026 was as follows. Compared to the fourth quarter 2025, industrial production was down 1.4 percent following seasonal and calendar adjustment, after registering a rise of 1.3 percent the previous quarter. Year on year, production was also down on a similar scale at minus 1.7 percent. Bucking the general downtrend in manufacturing, energy-intensive industries increased production by 2.1 percent quarter on quarter in the first quarter 2026 after seasonal and calendar adjustment. Energy production climbed 7.4 percent over the previous quarter after seasonal and calendar adjustment. Year on year, the increase was even larger at 9.1 percent. In the construction sector, production was 1.8 percent lower than in the fourth quarter 2025 and 3.6 percent lower than in the first quarter 2025. The downward production in construction was not surprising given the harsh winter months seen at the start of the year.
In the first quarter 2026, production was also down across all three main industrial groups. The producers of intermediates produced 1.3 percent less than in the previous quarter following seasonal and calendar adjustment, and lower than one year ago (-2.5%). Capital goods producers recorded the steepest drop with output down by 2.2 percent. Production here was also 1.1 percent lower than one year ago. Producers of consumer goods registered the second strongest drop in output, with
production 2.1 percent down quarter on quarter. Year on year, the decrease in production was even more pronounced (-3.6%).
After recovering in the final quarter of 2025, production failed to carry the upward trend into the new year. Production was already down in the months of January and February, ahead of the war in the Middle East. In March, the downtrend accelerated further. There are no signs of any improvement in view of the continuation of the conflict. Impending supply shortages of key intermediates are set to trouble production considerably in the next quarter as well.
Production, manufacturing
Change over previous year, two-month-comparison, in percent (right axis)
Volume index in manufacturing, two month average, seasonally adjusted (left axis)
Change over previous year (q-o-q), in percent
Source: Federal Statistical Office
Capacity utilisation rises slightly in spring
In the manufacturing sector, capacity utilisation at the start of the second quarter 2026 was 0.2 percentage points higher than in the previous quarter following a tangible decrease in the first quarter of the year. Standing at 77.8 percent, capacities were 0.9 percent more utilised than one year ago but still 5.5 percentage points lower than on average over the last ten years. The capacity utilisation rate in manufacturing excluding food was also slightly higher quarter on quarter and 1.0 percentage point higher year on year. At 77.8 percent, the utilisation rate of production facilities was nonetheless 5.7 percentage points lower than on average over the last ten years.
Among the individual industries, the producers of data processing equipment recorded the highest rise in capacity utilisation with an increase of 2.2 percentage points. Capacity utilisation rose 1.5 percentage points among vehicle manufacturers and 1.4 percentage points among producers of metal products. Capacity utilisation also rose slightly in the furniture industry (+0.6% percentage points) and in the food, alcoholic beverages and tobacco industry (+0.5 percentage points). The chemical industry (+0.2 percentage points) and machinery manufacturing (+0.1 percentage points) recorded only marginal rises in capacity utilisation quarter on quarter and decreases year on year in both cases. In
pharmaceuticals, the utilisation rate of production facilities dropped the most, going down 4.1 percentage points, followed by textiles (-1.4 percentage points) and the producers of electrical equipment (-0.8 percentage points).
Industry revenue up marginally at start of year
In the first quarter 2026, manufacturing revenue following price, seasonal and calendar adjustment was a slim 0.6 percent higher than in the fourth quarter 2025. This was the second quarterly increase in a row. Year on year, revenue was nonetheless 0.5 percent down. Looking at the origin of revenue, revenue from at home stagnated year on year. Revenue from abroad was 0.9 percent down. Revenue generated in the euro area was higher year on year (+2.0%), while revenue from trade with third countries dropped 3.1 percent.
Manufacturing revenue* in Q1 2026
Other transport equipment production
industry
Motor vehicle production
Glas, ceramics, stone, industrial minerals Electronic industry
Textiles, fashion & leather
*Change in percent, year on year
Source: Federal Statistical Office
In nominal terms, manufacturing revenue was up on the first quarter 2025 by 1.7 percent. While energy-intensive companies saw revenue rise 4.3 percent, revenue of the other industries only increased by one percent overall. The strongest increase in revenue was recorded by other transport equipment (+24.0%), followed by the metal industry (+9.3%). The heavyweight industries electro (+1.4%) and vehicle production (+2.1%) only increased revenue narrowly. The revenue of the building materials industry was only somewhat higher year on year (+0.5%). The most pronounced drop in revenue was recorded by textiles (-6.4%), followed by paper (-5.9%) and chemicals (-5.6%). The consumer-related industries food, alcoholic beverages and tobacco and pharmaceuticals saw revenue drop by 2.3 percent and 3.7 percent respectively. Revenue in machinery manufacturing was also down year on year (-1.6%).
Business climate: Slight recovery in May
After taking a plunge in March and April, the ifo business climate index for Germany recovered somewhat in May 2026. The surveyed companies were slightly more satisfied with their current situation and somewhat more optimistic about their business prospects for the next six months. The
index rose substantially in the services sector. Prospects rose particularly after weak results in the two previous months. Companies also rated their current situation as somewhat improved. In the logistics industry, sentiment remained tense but not quite as catastrophic as in April. The same pattern was displayed by tourism. In wholesale and retail, the index also pointed up with companies more satisfied with current business. Prospects also improved slightly following two pessimistic months,
*Balances, seasonally adjusted
Source: ifo Institut
but the situation remains difficult in both wholesale and retail on account of the reticence displayed by consumers. In mainstream construction, the business climate dampened a little, with companies unsatisfied with current business. Prospects improved slightly following a steep downturn the previous month. Sentiment in the manufacturing sector improved slightly. Companies were more optimistic about their current situation for the second consecutive month. Prospects deteriorated further but not as much as in the three previous months. With current business and prospects across industry largely negative, the ifo economic barometer remains in the recession quadrant. Sentiment among German exports has clouded over continuously since the start of the Iran war. Export prospects were more than two index points lower in May than in April A majority of companies have been pessimistic for three months now. Within the industrial sector, car manufacturers, the metal industry and energyintensive industries in general are expecting foreign revenue to decrease going forward. The electro industry is cautiously optimistic about its export prospects, as are furniture makers.
Business-Cycle Clock
Outlook
Since the start of the 2020s, the German economy has followed a similar pattern. Whenever it starts to recover, geopolitical events in spring snuff out economic recovery. Starting in 2020 with the outbreak of the Covid pandemic, the pattern continued with the start of the war in Ukraine in February 2022, the US tariff policy in 2024 and then, this year, with the US-Israeli war against Iran. The negative impact of the war in the Middle East is not yet reflected in German GDP trends. Germany’s economic output increased for the third consecutive time at the beginning of this year. The dark clouds are clearly on the horizon though and it is only a question of time until they affect economic activity.
Looking at private consumption, it was well below expectations at the start of the year already. The steep price increases on the oil and gas markets caused by the war have tangibly reduced purchasing power. In view of inflation rates of just under three percent in Germany at last count, the European Central Bank may opt to hike up interest rates. It is therefore hardly surprising that the majority of consumers expect the economic situation to deteriorate further in the next twelve months, according to an assessment by consumer research institute, GfK. Most consumers also assume that prices will rise in the next twelve months, although the most recent cut in the energy tax on diesel and petrol could ease tension slightly on the prices front. Unlike the previous years when rising employment helped prop up consumer demand, indications show otherwise this year. The number of people in employment subject to social security contributions in Germany has dropped continuously since September 2025, and already since August 2023 in the case of the manufacturing sector. We have therefore downwardly adjusted our growth prospects for private consumption to 0.6 percent in real terms (down from +0.8%). Public consumption expenditure is expected to increase by two percent in real terms according to the current assessment of the federal government.
Investment in plant and equipment rose slightly at the start of the year. Although companies invested less in machinery and equipment, they spent significantly more on vehicles, continuing the trend seen already in the second half of 2025. The still very low capacity utilisation rates across industry indicate a subdued expansion of investment in plant and equipment going forward, although the scheduled acquisition of military weapons systems should have a positive impact on investment levels soon. Construction investment was curbed by the severe weather conditions at the start of the year, but this should be compensated for in the further course of the year particularly as investment in infrastructure has only been postponed and not suspended. The situation in residential construction is more critical. Impending price increases in building materials and rising mortgage rates could cancel out recovery here. The increase in the number of approved apartments in the first quarter 2026 means that a recovery is not completely out of the question, though. We continue to stick to our forecast for construction investment of an increase of three percent but nonetheless regard a downward revision as quite likely. We do not see any need to revise our forecast for investment in other assets (software, research and development) as it has developed in line with our expectations at the start of the year. All in all, gross fixed capital formation should increase 2.9 percent compared to last year.
In foreign trade, exports are likely to remain weak. Although trade with our most important trade partners within the EU remains robust, the heightened geopolitical uncertainties are likely to affect business to some extent. Imports are set to clearly outperform exports on account of the increased prices for fossil fuels and commodities and the resulting deterioration in the terms of trade. We therefore expect net exports to again make a negative contribution to GDP growth. All in all, as things stand now, we expect economic output to increase by 0.4 percent in 2026 overall compared to the
previous year. However, this forecast is based on the current situation and the assumption that shipping through the Strait of Hormuz will resume soon. The longer the current blockades continue the more the forecasts for GDP in 2026 will need to be revised.
BIP forecast for 2026: Change in real economic output over the previous year in percent
Sources: Federal Government (February 2026; * Private households and private non-profit institutions serving households), Board of Experts (November 2025); ** including private households and private non-profit institutions,*** including military weapon systems, own calculations
Imprint
Federation of German Industries e.V. (BDI)
Breite Straße 29 10178 Berlin
T: +49 30 2028-0 www.bdi.eu
German Lobbyregister Number R000534
Author
Thomas Hüne
T: +49 30 2028-1592 t.huene@bdi.eu
Editorial / Graphics
Dr. Klaus Günter Deutsch
T: +49 30 2028-1591 k.deutsch@bdi.eu
Marta Gancarek
T: +49 30 2028-1588
m.gancarek@bdi.eu
This report is a translation based on „Quartalsbericht Deutschland II / 2026, „Bruttoinlandsprodukt zu Jahresbeginn um 0,3 Prozent gewachsen | Krieg im Iran dürfte konjunkturelle Erholung spürbar ausbremsen“, as of 1 June 2026
Basic data for national accounts
GDP (price, seasonally and calendar adjusted) Change over previous period in percent
Contribution to growth (in percentage points)
Source: Federal Statistical Office
