German GDP grows 0.2% in Q2 despite Iran war, beating forecasts

Growth defies war drag

The German economy expanded 0.2% in the second quarter of 2026 compared with the previous three months, the Federal Statistical Office (Destatis) reported in its first estimate on Thursday. The figure exceeded the 0.1% consensus forecast and marked the third consecutive quarter of growth, following a revised 0.4% gain in Q1 2026 and 0.3% in Q4 2025. The expansion came despite the Iran conflict that began in late February, when US and Israeli military strikes drove up global oil prices and raised costs for businesses and households.

Export engine and record order books

Exports increased during the spring, while private consumption was subdued and investment declined, Destatis noted. A broad set of monthly indicators pointed upward: industrial orders, production, building permits and retail sales all rose. Manufacturing order books are now fuller than at any time since the series began in 2015, and the order backlog reached a record 8.9 months. The Bundesbank suggested that German exporters may have benefited because international competitors, especially in Asia, were hit harder by shortages of intermediate goods.

In the shadow of the war in the Middle East, a trend reversal in German industry is finally emerging.

Policy support and improving sentiment

Berlin is injecting billions of euros into infrastructure and defence. In early July, the black-red coalition agreed a reform package that includes measures to cut bureaucracy, stabilise social security contributions, lower taxes and promote future industries, alongside a savings package for statutory health insurance. The Ifo business climate index, based on a survey of 9,000 managers, rose for the third straight month in July to 86.6 points. That is still below the 88.5 recorded in February, just before the Iran war began.

The German economy is ready to pick up momentum. A slight upward trend is emerging for the overall economy.

Oil threat and fragile outlook

The Iran conflict flared again in recent days, temporarily pushing oil above $100 a barrel. The Strait of Hormuz, a critical chokepoint for global oil and gas shipments, remains effectively blocked. KfW economist Philipp Scheuermeyer said the growth path can continue with moderately higher energy prices, but if energy exports from the Gulf region stall for too long, the energy price shock will still hit. Commerzbank chief economist Jörg Krämer stressed the recovery potential that would be unlocked if the US and Iran reached an agreement and the strait were permanently reopened.

For the further economic development in the positively started second half of the year, it depends especially on the development in the Middle East. The growth path can continue with moderately increased energy prices. But if energy exports from the Gulf region stall for too long, the energy price shock will still hit.

It shows what recovery potential exists if the US and Iran agree and the Strait of Hormuz is permanently opened.

The Bundesbank expects the war-related burden to ease slightly in the third quarter, provided the situation does not worsen. However, it cautions that temporary supportive factors from the second quarter could reverse, leaving GDP growth somewhat weaker. A noticeable upswing is not expected until 2027.