Germany’s economy expanded more strongly than expected in the first quarter of 2026, supported by a rebound in exports and higher government spending, offering temporary relief for Europe’s largest economy before the full impact of the Iran war and energy-market turmoil takes hold.
Data released Friday by Germany’s Federal Statistical Office showed gross domestic product grew 0.3% in the first quarter compared with the previous three months, confirming an earlier estimate.
The growth was largely driven by stronger foreign trade and increased public spending, which offset weak consumer demand and declining investment activity.
“After the slight increase recorded at the end of 2025, the German economy also began 2026 with positive growth,” said Ruth Brand.
“Exports, in particular, rose significantly at the beginning of the year, supporting Germany’s economic performance,” she added.
The figures provide limited breathing room for German Chancellor Friedrich Merz, who has faced mounting pressure to revive economic growth through structural reforms after years of stagnation.
Germany’s economy has struggled to achieve meaningful expansion for nearly three years, while political disagreements within the governing coalition have complicated efforts to improve the country’s economic outlook.
Efforts to restore momentum are becoming increasingly difficult amid continuing uncertainty in the Middle East.
A peace agreement between the United States and Iran remains elusive, keeping the Strait of Hormuz effectively disrupted and energy prices elevated.
Reflecting these concerns, Germany’s economy ministry recently cut its 2026 growth forecast in half to just 0.5%.
The current quarter could prove even weaker. The Deutsche Bundesbank has warned of possible economic stagnation, while S&P Global signaled that contraction remains a possibility after its monthly business survey showed activity declining for a second consecutive month in May.
Sentiment among German corporations remains mixed as companies navigate rising costs, geopolitical risks, and weakening demand.
Thyssenkrupp AG lowered its sales outlook, warning that annual revenue may at best remain flat amid deteriorating market conditions.
Meanwhile, Volkswagen AG reported weaker operating margins in the first quarter as tariffs, intensifying Chinese competition, and sluggish consumer demand continued to pressure profitability.
BMW AG said it expects stable demand in China and pointed to easing concerns over potential US tariffs on European vehicles after US President Donald Trump softened his latest tariff threats.
At the same time, Siemens AG announced plans for a share buyback program worth up to €6 billion ($7 billion) following a rise in new orders.
Government spending on infrastructure and defense has also helped support economic activity during the quarter.
However, economists cautioned that part of the export-driven growth reflected relatively weak import demand, highlighting persistent fragility in domestic consumption and investment.
Recent trade data also suggests export momentum may be slowing, particularly after figures released earlier this week showed German exports to the United States declining compared with last year.
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