With a gross domestic product of 4,470 billion euros in 2025, Germany remains the world’s third-largest economy—behind the United States and China and just ahead of Japan—and is thus also Europe’s largest economy. Looking ahead, however, India is expected to overtake Japan and Germany. Exports of motor vehicles and vehicle parts, as well as chemical products, in particular, have made Germany the world’s third-largest exporting nation. The service sector accounts for the largest share of the country’s gross domestic product (GDP), at 70%.
Data retrieved: 9 April 2026
Current insights in April 2026
- Economic growth
- Export
- Inflation
- Unemployment
- R&D
Growth forecast for 2026 more than halved
Leading economic research institutes have significantly lowered their economic forecasts for this year due to the war in Iran and the resulting sharp rise in energy prices. Gross domestic product growth in Germany is now expected to be just +0.6% in 2026, the institutes reported—about six months ago, they had still anticipated a +1.3% increase.
The energy price shock in the wake of the Iran war is hitting the recovery hard, but at the same time, expansionary fiscal policy is supporting the domestic economy and preventing a steeper decline. For 2027, the institutes expect growth of +0.9%. This, too, is significantly more pessimistic than before: prior to the Iran war, they had projected +1.4%.
Business sentiment in Germany has also deteriorated in the wake of recent developments. The ifo Business Climate Index fell to 86.4 points in March 2026, down from 88.4 in February 2026. Companies were cautious about their current business conditions, and expectations also dimmed.
The public expenditure ratio, which indicates the government’s influence on an economy, is calculated as total government spending as a percentage of GDP. According to the European Commission, this ratio stood at 50.2% in Germany in 2025, marking a further increase of 0.7 percentage points compared to 2024. This placed the public expenditure ratio slightly above the EU average of 49.6%, but significantly above that of other major economies, such as the United Kingdom (46.9%), Japan (41.3%), and the United States (39.6%).
According to the OECD, the share of taxes and social security contributions in total labor costs for average earners in Germany in 2024 was 47.9% for singles without children. This ranks Germany second-worst among the 38 OECD member states, behind Belgium, and is significantly above the OECD average of 34.9%, which undermines Germany’s attractiveness as an investment location. The rate is also significantly lower in countries outside the EU, such as the United Kingdom (29.4%) or the United States (30.1%).
Current forecasts by German economic research institutes and government organizations regarding GDP growth in Germany range from +0.6% to +1.2% for the calendar year 2026 and from +0.9% to +1.6% for 2027. It is also evident that the most recent forecasts from March and April 2026 show a negative trend, whereas the forecasts from November and December 2025 still assumed a positive trend:
Data retrieved: 9 April 2026
German exports rise in February 2026
Following the setback at the start of the year, German exporters saw business pick up again in February 2026. In total, goods “Made in Germany” worth 135.2 billion euros were sold abroad, representing a 3.6% increase compared to January of this year. There was also an increase compared to February 2025: based on preliminary data, exports were up 2.9%.
Conversely, goods worth 115.4 billion euros were imported in February 2026—an increase of 4.7% compared to the previous month, January 2026. The foreign trade balance for the single month of February 2026 thus closed with a surplus of 19.8 billion euros.
Most German exports in February 2026 were once again destined for the United States. Calendar- and seasonally-adjusted exports to the U.S. totaled 12.2 billion euros, which was
7.5% less than in January 2026. Compared to the same month a year earlier, February 2025, exports to the United States were even 13.3% lower on a calendar- and seasonally-adjusted basis.
Most imports in February 2026 came from the People’s Republic of China. Calendar- and seasonally-adjusted imports from there totaled 15.0 billion euros. This was 6.5% more than in the previous month.
The Federal Association of Wholesale, Foreign Trade, and Services (BGA) expects that the economic consequences of the war in Iran, which began on February 28, 2026, will continue to be felt by European wholesale and foreign trade for some time to come.
Real (price-adjusted) order intake in the manufacturing sector rose by +0.9% in February 2026 compared with January 2026, after seasonal and calendar adjustment. Excluding large orders, order intake was +3.5% higher than in the previous month. In the less volatile three-month comparison, order intake from December 2025 to February 2026 was 2.0% higher than in the previous three months.
Real (price-adjusted) production in the manufacturing sector fell by 0.3% in February 2026 compared to January 2026, after seasonal and calendar adjustment. In the less volatile three-month comparison, production from December 2025 to February 2026 was 0.4% lower than in the previous three months.
Inflation jumps to 2.7 percent in March 2026
The war in Iran had a full impact on consumer prices in March 2026. Due to sharply rising energy prices, the inflation rate jumped to 2.7%. This is the highest level in more than two years. In February, the inflation rate had fallen to 1.9%.
Energy prices rose particularly sharply in March 2026: here, prices rose by +7.2% compared to the same month a year earlier. This is the first increase in energy prices since December 2023. Prices for services, which include restaurant visits and travel, rose by +3.2%. Food was +0.9% more expensive than a year earlier.
The war between the U.S. and Israel against Iran drove up the prices of oil, gas, and, consequently, fuel. Iran has largely closed the Strait of Hormuz: one-fifth of global oil consumption is transported through the strait. This has caused shortages, which is why world market prices have risen.
Before the war in Iran, economists had expected inflation in Germany to be just above the 2% mark this year. That now seems to be a thing of the past. For 2026, economic research institutes are currently forecasting an average inflation rate of between 1.8% and 2.9%. The latest forecasts from March and April 2026 range between +2.4% and +2.9%:
Data retrieved: 9 April 2026
Unemployment remains above the three-million mark
Despite the spring upturn, the number of unemployed fell only slightly in March 2026—by 49,000 compared to the previous month. At 3.021 million, the figure remained above the three-million mark. Compared to the same month last year, this represented an increase of 54,000 unemployed. The unemployment rate fell by 0.1 percentage points from February to 6.4%. Overall, the labor market remains stable despite the difficult economic environment. At the same time, the situation is challenging.
International uncertainties are weighing on economic development. As a result, companies remain cautious about hiring new employees. The deindustrialization of Germany and the resulting job cuts in the manufacturing sector are also putting pressure on the labor market. At the same time, the increasing use of artificial intelligence is leading to the elimination of entry-level office jobs in particular. Finding employment is therefore particularly difficult for the unemployed and those just entering the workforce. However, the risk of becoming unemployed after securing a job remains low in a long-term comparison due to labor laws, which are strongly focused on protecting employees.
Share of research and development expenditures rises to an all‑time high
Spending on research and development in Germany rose significantly in 2024. It increased by +3.8% to 137.1 billion euros. At 3.17%, its share of gross domestic product (GDP) reached its highest level since the time series began in 1995. By comparison, the figure stood at 3.13% in 2023, only slightly lower.
Germany thus slightly exceeded the 3% target set by the EU’s “Europe 2020” growth strategy. However, the national target announced by the government in December 2024 to increase spending to 3.5% by 2025 has not yet been achieved. The figures include all spending on research and development in the private sector, at universities, and at non-university institutions.
Our most important study results, analyses, and classifications for strategic adjustments to the key areas of geopolitics, artificial intelligence, and sustainability can be found in our white paper From Fragmentation to Trusted Growth: What Matters for Leaders in 2026.
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