Economic Buzz: German economic output is likely to have contracted in third quarter of 2026

German central bank has stated in a latest monthly update that German economic output is likely to have contracted in the third quarter of 2026. Following the marked increase in the first half of the year, seasonally adjusted Seasonal adjustment here and in the remainder of this text also includes adjustment for calendar effects, provided they can be verified and quantified. real GDP has probably not risen any further in the third quarter. The economic recovery has thus been interrupted for the time being. This was mainly due to temporary stress factors.

In addition, the competitive edge over foreign competitors, who were particularly burdened by supply chain problems related to the war in the Middle East, is likely to have expired at the beginning of the second half of the year. This is likely to have weakened exports in the third quarter. One-off effects related to the fuel rebate also play a role. They dampened retail sales in the third quarter owing to consumers shifting their fuel purchases. In addition, high energy prices weighed on households’ purchasing power. Overall, private consumption is therefore unlikely to have provided any stimulus to growth in the third quarter.

However, it noted that German economic output is likely to improve again markedly in the fourth quarter. According to sentiment indicators provided by the ifo Institute, in September enterprises were already assessing their current situation more favourably than before. This also holds true for their business prospects for the next few months. However, the future economic recovery depends, not least, on the development of the war in the Middle East.

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