Subdued Start to 2026 Expected
Germany's central bank, the Bundesbank, forecasts that the German economy will experience moderate growth in the first quarter of 2026, albeit with subdued momentum. This outlook follows a period of modest expansion in the final quarter of 2025. The Bundesbank's February 2026 Monthly Report comments on the economic situation in Germany at the turn of 2025/26.
Indicators suggest that private consumption may not sustain its previously elevated level in the first quarter of 2026, contributing to the weak initial momentum. The industrial sector, while stabilizing, is also expected to remain relatively weak.
Anticipated Acceleration from Q2
Despite the cautious start, the Bundesbank projects a more dynamic economic recovery for Germany starting from the second quarter of 2026. This acceleration is expected to be primarily driven by several key factors:
- Increased government spending, particularly on defense and infrastructure.
- A resurgence in exports.
- Rising wages and a gradual improvement in the labor market.
- A recovery in private residential construction investment.
Bundesbank President Joachim Nagel stated that 'The German economy will make headway again in 2026: while progress will be subdued initially, it will then slowly pick up.' He added that 'Starting in the second quarter of 2026, economic growth will strengthen markedly, driven mainly by government spending and a resurgence in exports.'
Economic Context and Outlook
The forecast for moderate growth in early 2026 comes after real gross domestic product (GDP) in Germany rose by 0.3 percent quarter-on-quarter in the fourth quarter of 2025. This marked a resumption of an upward trend that began at the end of 2024, following a temporary setback in mid-2025. For the entirety of 2026, the Bundesbank expects calendar-adjusted real GDP to rise by 0.6 percent. This figure represents a slight downward revision from an earlier forecast of 0.7 percent.
Regarding inflation, the Bundesbank forecasts the Harmonised Index of Consumer Prices (HICP) to fall to 2.2 percent in 2026. However, the bank noted that inflation is declining somewhat slower than previously anticipated, partly due to continued strong wage growth and less significant declines in energy prices.
6 Comments
Leonardo
Relying on government spending isn't a sustainable long-term solution.
Raphael
Subdued momentum for Q1? Sounds like another slow year ahead.
Michelangelo
It's good that inflation is projected to fall to 2.2%, but the slower-than-anticipated decline means households will feel the pinch for longer. The strong wage growth might be a double-edged sword.
Raphael
Rising wages are beneficial for workers and consumer confidence, but the article also notes they contribute to inflation declining slower. It's a complex balance for the Bundesbank to manage.
Leonardo
The emphasis on government spending and exports to drive growth is understandable, yet it raises questions about the strength of organic domestic demand. We need more than just public sector boosts.
Michelangelo
Inflation falling slower means higher prices for longer. This isn't good.