Germany: Recovery risks rise after Middle East conflict – Commerzbank

Commerzbank’s Dr. Ralph Solveen notes that German industry orders rose 5% in March, with core orders up 5.1% and gains broadly spread across sectors, indicating an economic recovery was underway before the Middle East conflict. He now expects higher energy prices and uncertainty from the war in Iran to dampen demand, with order figures likely to weaken and a slight GDP contraction possible in Q2 2026.

War shock threatens fragile German recovery

"New orders in the German economy rose by 5% in March compared with the previous month. Unlike in many of the previous months, big ticket orders played only a minor role in this increase. This suggests that the generally expected economic recovery had been already underway before the war in the Middle East began."

"Without the war in Iran, this would have painted a positive picture for the German economy: The significant increase in March would have greatly increased the likelihood that the core figure for order intake would end its more than two-year sideways trend and that demand for German industrial goods – also driven by stronger government demand – would finally pick up again."

"However, the war in Iran has caused energy prices to skyrocket and significantly increased uncertainty, which in turn has markedly dampened business sentiment. This will – at least as long as the war continues and the Strait of Hormuz remains closed – curb their demand for industrial goods. Consequently, we can expect order figures to deteriorate again in the coming months, and it is quite possible that the German economy will contract slightly in the second quarter following the growth seen around the turn of the year 2025/26."