Despite all the crises, the German economy grew more significantly than expected at the beginning of the year. The gross domestic product (GDP) increased by 0.3 percent in the first quarter compared to the previous quarter, as the Federal Statistical Office calculated based on preliminary data. Although it is only a mini-growth, expectations were much more pessimistic, not least because of the Iran war.
According to the Wiesbaden statisticians, both private and government consumer spending was higher in the first three months than in the final quarter of 2025, in which the German economy only grew by 0.2 percent, according to newly calculated figures. According to preliminary findings, exports also increased in the first quarter.
Gloomy prospects
“That was a surprisingly good start to the year, especially since the first quarter was already affected by the turmoil in Greenland and the Iran war,” said Sebastian Wanke, economic expert at the KfW development bank. “The data shows that it could have been a strong year for the German economy. There remains hope that the Strait of Hormuz will open soon so that the growth forces can breathe again.”
The Iran war is likely to slow down the hoped-for noticeable upswing. Rising oil and fuel prices, problems in the supply chains, uncertain export markets: The German economy, which is dependent on raw material imports, is feeling the consequences of the Iran war, which began on February 28th and is still not over.
Buying mood in the basement – bad mood in companies
Economists assume that Germany, which is dependent on energy imports, will have to deal with the consequences of the conflict in the Middle East for a longer period of time. Higher energy prices, especially at gas stations, put a strain on consumers and companies, which slows down consumption and investment.
People’s purchasing mood was recently as low as it was two years ago. And the Ifo business climate among companies fell significantly in April. “Hopes for an upswing are gone for the time being,” commented Ifo President Clemens Fuest.
Will the billion-dollar package stimulate the economy?
Economists have been lowering their economic forecasts for the current year one after the other. Leading economic research institutes expect that German economic output will only increase by 0.6 percent in 2026. The federal government is even more pessimistic with an increase of 0.5 percent. 2027 should be slightly better at 0.9 percent. Before the Iran war, many experts had expected growth of around one percent this year, and some even more.
Now the debt-financed infrastructure offensive and more working days in 2026, because public holidays fall on a weekend, promise growth in the current year.
There is great hope that in 2027 the huge 500 billion euro debt package for infrastructure and climate protection as well as additional spending on defense approved by the old Bundestag will give the economy a more significant boost.
Industry is moving away
Last year, with an increase of 0.2 percent, Germany narrowly missed its third year in a row without economic growth. But the confidence at the beginning of the year has given way to disillusionment. In a survey by the German Economic Institute (IW) in March, 43 percent of the 964 companies surveyed from industry, services and construction reported worse business than a year ago. Four out of ten companies want to invest less, and more than a third (37 percent) of industrial companies are planning to use fewer staff.
German industry is investing more and more frequently abroad, as a survey by the German Chamber of Commerce and Industry (DIHK) showed: 43 percent of the 1,700 companies surveyed are planning investments outside of Germany in the current year – often to save costs. “Companies are losing confidence in the location conditions in this country,” warned DIHK foreign trade director Volker Treier.
Reform backlog is slowing down
The federal government must advance fundamental reforms instead of putting together emergency packages, the “Wirtschaftsweise” Veronika Grimm recently warned. The economist emphasized that it is urgently necessary for Germany, which has been economically weak for years, to solve its structural problems: pension system, corporate taxes, income taxes.