Germany: GDP Recovery strengthens outlook – Deutsche Bank

Deutsche Bank expects Germany’s stronger-than-expected H1 2026 GDP performance to lift annual growth closer to 1% from the previous 0.5% forecast. Near-term transport headwinds should remain contained as Rhine water levels recover, although Q3 growth could temporarily stall. Private consumption remains a weak spot as 2.7% inflation erodes wage gains, while expansionary fiscal policy is expected to support investment into late 2026 and 2027.

Growth outlook lifted on stronger H1

"The German economy maintained its surprisingly robust recovery path in the first half of the year. The final Q2 GDP data brought an upward revision of the initially reported growth rate to 0.3% quarter-on-quarter. Together with the already surprisingly strong Q1 momentum of 0.4% and the positive statistical carry-over of almost 0.2 percentage points from 2025, this now puts our 2026 annual growth forecast significantly closer to 1% than the previously assumed 0.5%."

"The transport-related headwinds threatening the current third quarter are likely to remain contained for now, thanks to the weather-driven recovery in water levels at critical Rhine bottlenecks. This should largely put fears of a Q3 GDP contraction to rest, although a temporary slowdown in growth momentum, possibly to stagnation, cannot be ruled out."

"Private consumption is likely to remain a weak spot, as consumer price inflation—driven by elevated oil and gas prices—continues to erode purchasing power. In 2026 as a whole, we expect inflation, measured according to the national definition, to run at 2.7%, absorbing much of the projected 3% increase in collectively agreed wages. This is also reflected in still subdued consumer sentiment."

"However, the expansionary fiscal stance continues to support growth. Its effects are likely to become increasingly visible in the real economy during the second half of the year, providing a particular boost to investment momentum in late 2026 and 2027. The federal deficit is projected to rise to 4.1% of nominal GDP in 2026 and 4.2% in 2027."