The Economic Situation in the Federal Republic of Germany in March 2026

Geopolitical uncertainty impacts outlook

The positive economic development in Germany at the end of last year has not continued into the new year. Both demand for industrial goods and industrial output fell appreciably in January. It is true that sentiment has recently improved a little, with the ifo Business Climate improving in trade and industry in February with regard to both the current situation and future expectations. However, the index remains well below its long-term average. The S&P Purchasing Managers’ survey has also recently begun to stabilise, with the index for Germany crossing the growth threshold for the first time in a longer period in February. This would suggest a gradual recovery. However, it is unclear to what extent these signals will remain valid in the coming months: the global rise in crude oil and gas prices following from the newly erupted conflict in the Middle East is not yet reflected in these surveys. The sentix index for the global economy, which was published by experts on the financial markets shortly after the attacks in Iran, suggests that sentiment has palpably toned down in March, both in Germany and on a global scale.

Domestic economic development shows a mixed picture at the beginning of the year. Domestic industrial turnover and domestic new orders are continuing to point upwards overall, with major fluctuations caused by large orders. The construction sector also continued its recovery throughout January, but mainly driven by the finishing trades, which are less vulnerable to weather conditions.

At the same time, private consumption appears to be losing traction. Retail turnover dropped appreciably in January, following a strong rise at the turn of the year, and the sentiment indicators on private household consumption have been performing weakly despite a continued improvement in real household incomes. The survey on the general consumption climate and the ifo consumption climate for the retail trade have recently dimmed down. This is particularly true of larger purchases, which still tend to be postponed. The impact of the Israeli and US military attacks on the Iranian regime and the following increases in energy prices, which are not as yet reflected in the consumer surveys, are likely to further hold back consumer sentiment over the coming months.

The development of foreign trade is continuing to be marked by weak demand from important sales markets and by increased geopolitical risks. The latest conflict in the Middle East has exacerbated the level of uncertainty on the energy and commodities markets and resulted in greater volatility of energy prices. So far, the repercussions on the real economy are likely to be limited but, depending on the duration of the conflict and the de-facto blockade of the Strait of Hormuz and any longer term limitations on the oil and gas production capacities there, there may be a risk of a supply bottleneck with spillover effects on the global energy markets.

In the light of the recent increase in geopolitical uncertainty and risks, the process of economic recovery remains fragile.

Economic development pointing upwards; but risks of downward trend increasing appreciably

Global industrial output expanded by 0.7% between November and December, putting the annual average for 2025 3.2% above that of the preceding year (+1.7% in 2024). While Asia and particularly China (+5.9%) was able to considerably increase its output year-on-year, the expansion in the eurozone was more modest at +1.4%, as was that of the US (+1.3%). The leading indicators for the remaining months of winter are indicative of a moderate global upwards trend: the S&P Global World Purchasing Managers’ Index (PMI) rose again in February, from 52.5 to 53.3 points. The mood improved month-on-month in the industrial sector and among service providers. However, this data was collected prior to the start of the war in Iran. The sentix index for the global economy, which seeks to gauge financial investors’ economic expectations, dropped from 15.2 to 9.7 points in March, after the beginning of the Iran conflict, after previously being on the rise for six consecutive months.

Global trade grew more slowly month-on-month after a considerable rise in December (+0.4%), but, overall, the global trade in goods expanded by 4.4% year-on-year between 2024 and 2025 – with high fluctuations and despite a restrictive US trade policy. This was partly due to frontloading of orders in the face of tariff announcements and hikes. Container throughput data is suggestive of a rise in trade activity at the beginning of this year, too. The RWI/ISL Container Throughput Index was up 2.6 points at 144.7 points in January – but this is partly attributable to special effects connected to the Chinese New Year. By contrast, the container throughput indicator fell from 122.2 to 117.0 for the European ports. The Trade Nowcast of the International Monetary Fund also signalled a growth in global trade in February, but at a lesser speed compared to the preceding months.

All in all, the prospect of a global economic recovery is likely to have dimmed down a little in the light of the escalation of the Middle East conflict and the massive global increase in energy prices. At this point, none of the current forecasts published by international organisations are already informed by these developments. Several economic research institutes have based their spring forecasts on the assumption that there will be a temporary slowdown of the global economy, but are pointing out significant risks of a downward trajectory in the event of a longer lasting conflict in the Middle East.

Foreign trade makes negative start to the new year

Having performed strongly at the end of 2025, foreign trade was set back in January. Nominal exports of goods and services fell by 2.5% between December and January, after adjustment for seasonal and calendar effects. While exports to other EU countries were significantly down (-4.8%) month-on-month, exports to third countries rose by 1.0%, driven by a strong rise in exports to the US (+11.7%). The less volatile three-month comparison shows that, overall, exports stagnated. Nominal imports of goods and services declined 7.4% at the beginning of the year, due to a significant drop in imports from the EU and from third countries month-on-month. However, imports of goods and services are still up in the three-month comparison (+1.8%). As imports declined more than exports, the monthly surplus from trade in goods and services expanded by €7.1 billion, to reach €12.6 billion.

Seasonally adjusted import prices saw their strongest rise month-on-month in January since January 2025 (+1.1%). This was due to higher prices for metals, oil and gas. Export prices rose somewhat less strongly, by +0.6%, so that the terms of trade deteriorated by 0.4% compared to December (adjusted for season). In real terms, the declines in exports and imports were likely even larger.

The leading indicators at the beginning of the year are still suggestive of a stabilisation of foreign trade, but do not as yet take account of the latest developments in the Middle East conflict. The ifo export expectations improved slightly in February, for the second consecutive time, crossing the threshold to positive again for the first time since October (2.6 balance points). The automotive sector is continuing to expect growing foreign sales, whereas the chemical industry and the mechanical engineering sector are preparing for falling exports.

New orders from abroad dropped abruptly by -7.1% between December and January (in seasonally adjusted terms). However, excluding large orders, foreign demand is stable. There was a lower volume of orders for other vehicles and also metal products, electric equipment and machinery. Nevertheless, the three-month comparison shows a positive trend (+4.0) for foreign demand.

The development of foreign trade and investment remains volatile. As uncertainties around trade and geopolitical developments have recently grown quite considerably, so have downward risks for a recovery of exports: the global rise in oil and gas prices and the increased volatility on the financial markets caused by the conflict in Iran are putting a damper on sentiment among consumers, producers and investors – ultimately dimming down sales prospects.

Industrial activity weakens

Production in the goods-producing sector was scaled back at the start of the year. Compared with the previous month, output fell by 0.5% after price, calendar and seasonal adjustment. Production had already declined in December 2025, a figure that has since been revised upwards to -1.0%. However, the less volatile three-month comparison still shows an increase of 0.9%. Compared with the same month a year earlier, production was 1.2% lower after adjustment for the number of working days.

The decline was mainly driven by a marked drop in industrial production (-2.5%). By contrast, output in construction (+2.9%) and the energy sector (+10.3%) increased significantly.

Within industry, it was particularly consumer goods producers that reduced their output (‑4.2%). Producers of intermediate goods and capital goods producers also cut back production compared with the previous month (-2.6% and -1.6% respectively). In the construction sector, strong growth in finishing trades (+8.4%) offset a weather-related slump in the construction industry proper (-8.5%).

A large share of industries reduced their output. This included major sectors such as motor vehicles and motor vehicle parts (-1.2%), metal products (-12.4%), electrical equipment (‑4.4%), and computers, electronic and optical products (-6.8%). Production in energy-intensive industries also declined again, falling by 0.7%. Only a few sectors expanded production, including chemical products (+3.8%) and mechanical engineering (+0.4%).

New orders in manufacturing also recorded a setback at the beginning of the year. The volume of orders fell sharply, down by 11.1% month-on-month after price, calendar and seasonal adjustment, following an increase of 6.4% in December according to revised data. As a result, the expansion in industrial demand that had been emerging since September 2025, driven by strong growth in orders, came to a halt at the start of the year. After the industrial order backlog rose sharply in Q4 2025 due to major orders related to large-scale public investment and procurement projects, a consolidation at the start of the year is unsurprising. In the less volatile three-month comparison, orders continued to increase strongly, up by 7.4%. At the same time, the level of new orders was 3.7% higher than in the same month last year after adjustment for the number of working days.

The weaker demand for industrial goods at the start of the year was mainly due to a sharp decline in domestic orders (-16.2%), which had previously expanded disproportionately strongly. However, foreign demand also fell noticeably (-7.1%). This largely reflects the high volatility in major orders. Even excluding major orders, new orders in January declined slightly, dropping by 0.4%.

Across individual sectors, new orders in January were significantly lower than in the previous month (-14.1%), particularly among capital goods producers; however, they were 9.1% higher than in the same month last year. New orders for consumer durables (+5.1%) continued to show an upward trend. By contrast, orders for intermediate goods (-7.9%) and non-durables (-2.3%) declined again in January.

The majority of sectors recorded falling new orders in January. The decline was particularly pronounced among manufacturers of metal products (-39.4%) and in metals production (‑15.1%). However, fewer orders were also received in key sectors such as mechanical engineering (-13.5%), manufacturers of computer, electronic and optical products (-11.1%), and electrical equipment (-9.1%) compared with the previous month. Noticeable increases were recorded only in motor vehicles and motor vehicle parts (+10.4%) and in other transport equipment (+9.2%).

The latest sentiment indicators in manufacturing, such as the ifo Business Climate Index and the S&P Purchasing Managers’ Index (PMI), point to an improved assessment of the current business situation, positive order trends, and plans for higher production. However, against the backdrop of recent developments in the Middle East, which are not yet reflected in these indicators, and significantly higher global prices for crude oil and gas on the global markets, the risk of a setback to the expected recovery in industrial activity has increased markedly.

Retail turnover declines after upward revision; consumer uncertainty remains high

Price-adjusted retail turnover (seasonally adjusted, excluding motor vehicles) fell by 0.9% in January compared with the previous month, following a significant upward revision to the December figure. While food retail sales stagnated month-on-month, non-food sales declined by 1.7%. Compared with the same month last year, retail turnover increased by 1.1% in January, with food sales rising by 2.1% and non-food sales by 0.3%. In the three-month comparison, total retail turnover also showed a slight upward trend (+0.5%), with non-food sales increasing by 0.2% and food sales by 0.7%.

Turnover in the hospitality sector rose by 1.4% in nominal terms in 2025 as a whole, but declined by 2.1% in real terms, with accommodation services and food services showing broadly similar developments. At the same time, accommodation establishments recorded more overnight stays than ever before in 2025 (+0.3% compared with the previous record year of 2024). While overnight stays at campsites increased significantly in 2025, those in the hotel sector declined slightly. In December 2025, turnover in the hospitality sector showed a slight decline both in nominal and real terms over the previous month. Compared with December 2024, this corresponded to a real decrease of 2.0% and a nominal increase of 1.6%.

Following a strong second half of 2025, the automotive market made a weak start to the new year, with new registrations initially subdued despite new electric vehicle incentives. In February, new passenger car registrations increased again by 3.0% month-on-month, while the more meaningful three-month comparison shows a decline of 5.5%. Compared with the previous year, registrations were 3.8% higher. New registrations by private individuals rose by 5.4% month-on-month, but fell sharply in the three-month comparison (-11.3%). Compared with the same month last year, they were 0.9% higher. Registrations by companies and self-employed persons increased by 1.9% in February, but declined by 2.5% in the three-month comparison.

After private consumption picked up markedly in Q4 2025, according to detailed data from the Federal Statistical Office, leading indicators at the start of the year present a mixed picture. According to GfK forecasts, consumer sentiment is expected to deteriorate in March, falling by 0.5 points to -24.7, after rising by 2.7 points to -24.2 in February. This was driven by a decline in willingness to spend and an increase in the propensity to save, the latter reaching its highest level since the 2008 financial and economic crisis. Income expectations increased again, while economic expectations declined; the latter are not included in the calculation of the GfK consumer climate. The HDE consumer barometer also deteriorated in March after two consecutive increases. The ifo business climate index in retail (including motor vehicles) fell by 3.6 points to -27.7 in February, following gains in the previous month. Both the assessment of the current business situation and business expectations were more pessimistic than in January.

Overall, recent sentiment indicators point to broadly flat consumer activity in Q1 2026. While consumers appear to be gaining confidence in overall economic growth and rising personal incomes, they remain cautious in their spending. The renewed conflict in the Middle East, along with the sharp increases in energy prices it has triggered, is likely to heighten consumer uncertainty and weigh noticeably on consumer sentiment in the short term.

Inflation just under 2% in february

The inflation rate stood at +1.9% year-on-year in February, slightly down from 2.1% in January. Compared with the previous month, consumer prices increased by 0.2%. Core inflation remained significantly above headline inflation at +2.5%. Services prices continued to rise at +3.2%, while goods prices increased by only +0.8%. At 1.1%, food price inflation remained well below the 12-month average of 2.0%. Energy prices declined by 1.9%. The slight decrease in headline inflation is attributable not only to lower energy prices, but above all to a weaker increase in food prices. At upstream stages of the economy, prices remained broadly stable overall. Producer prices excluding energy rose by 1.2% year-on-year in January, with metals (+6.6%) and wood (+7.0%) recording strong increases. Overall, inflation continues to be driven primarily by domestic factors, in particular rising wages and costs in service sectors such as care, healthcare and other social services. By contrast, import and energy prices have so far had a dampening effect. Over the course of the year, inflationary pressure from the services sector is expected to persist. As a result of the conflict in the Middle East and the sharp rise in global oil and gas prices it has triggered, inflation is likely to increase temporarily in the coming months.

Economic stimulus has yet to reach the labour market

The labour market continues to show little movement. Seasonally adjusted unemployment in February increased by around 1,000 people, roughly unchanged from the previous month. Underemployment also remained virtually unchanged, declining by 3,000 people. Employment fell by 13,000 in January, while social security–insured employment recorded a slight increase of 5,000 in December. Employment trends are increasingly influenced by demographic change. According to preliminary data, use of short-time work fell sharply in December, declining by 48,000 people. Reported short-time work in February is expected to return to roughly the same level as at the end of 2025.

Leading labour market indicators deteriorated again recently. The IAB Employment Barometer fell noticeably in February, reaching 99.5 points, its first reading below the neutral threshold of 100 in six months. Employment prospects for the unemployed in particular worsened during the winter months. The ifo employment barometer again lost part of the strong gain recorded in the previous month. Employment prospects in the services sector have weakened further. In industry and trade, the indicators point to continued job reductions, while slight employment growth is visible only in the construction industry proper. Although company order books improved slightly at the start of the year, overall demand for labour remains subdued. A turning point in the labour market is therefore not yet in sight.

Corporate insolvencies remain at a high level

According to official statistics, the number of corporate insolvencies rose by 13.5% month-on-month in December 2025, reaching 2,037 filed cases, and was 13.7% higher than in December 2024. Compared with the December average for 2016–2019, this corresponds to a change of +36%. In 2025 as a whole, a total of 24,064 corporate insolvencies were recorded, up by 10.3% from the previous year. The last year with a higher number of cases was 2014, when 24,085 corporate insolvencies were reported.

The IWH insolvency trend for partnerships and corporations – methodologically narrower and more up-to-date than the official statistics – recorded 1,466 insolvencies in February, up 5% from the preceding month and 2% year-on-year. The number of affected employees (23,000) rose by 38% month-on-month, and was therefore 22% higher than in February 2025.

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¹ This report is based on data that were available as of 13 February 2026. Unless stated otherwise, these are rates of change against the respective preceding period on the basis of price-adjusted figures which have also been adjusted for calendar-day and seasonal variations.