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. Exports of motor vehicles and automotive parts, as well as chemical products, in particular, make Germany the world’s third-largest exporting nation. At 70%, the service sector accounts for the largest share of the country’s gross domestic product (GDP). With a share of around 26%, industry in Germany makes a comparatively high contribution to economic output. In other European countries such as France or the United Kingdom, as well as in the U.S., this figure is about 17%, whereas in China it is around 38%.
Data retrieved: 8 September 2026
Current insights in September 2026
- Economic growth
- Export
- Inflation
- Unemployment
- Real wages
The German economy is gaining momentum again
In early September, several German economic research institutes significantly raised their economic forecasts. They cited surprisingly strong exports and the fact that the impact of the war in Iran was less severe than feared as the reasons for this. The fact that economic growth at the end of 2025 and the beginning of 2026 turned out to be stronger than originally assumed, according to revised data from the Federal Statistical Office, is also having a positive effect on the outlook. At the same time, however, structural problems such as high energy prices, excessive bureaucracy, and weak competitiveness persist.
Business sentiment in Germany also improved again in August. The ifo Business Climate Index rose to 88.8 points, up from 86.7 in July. This was due to significantly better expectations and greater satisfaction with the current situation.
The government spending 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 figure stood at 50.2% in Germany in 2025, representing a further increase of +0.7 percentage points compared with 2024. As a result, the public expenditure ratio was slightly above the EU average of 49.6%, but significantly higher than 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, income tax plus employee and employer social security contributions for a single worker with an average income amounted to 49.3% in Germany in 2025. This means that, among all 38 OECD member states, Germany has the second-highest tax and contribution rate after Belgium and is significantly above the OECD average of 35.1%, which significantly undermines Germany’s attractiveness as an investment location. Even in countries outside the EU, such as the United Kingdom (32.4%) or the United States (30.0%), the rate is significantly lower.
Current forecasts by German economic research institutes and government organizations regarding GDP growth in Germany range from +0.4% to +1.4% for the calendar year 2026 and from +0.8% to +1.3% for 2027. The most recent forecasts, in particular, paint a significantly more positive outlook.
Data retrieved: 8 September 2026
German exports fell in July compared to the previous month
After five months of growth, German exporters suffered a decline for the first time in July. Compared to the record-breaking month of June, calendar- and seasonally-adjusted exports fell by 0.8% to 138.2 billion euros. Compared with the same month a year earlier, however, there was still a significant increase of 6.1%.
German exporters achieved growth primarily in trade with the United States. Exports worth 14.4 billion euros represented a 19.1% increase compared to June and as much as 28.3% compared to the same month last year. By contrast, exports to the United Kingdom, China, and the European Union declined.
Imports into Germany also declined. Compared to June, they fell by 5.7% to 116.9 billion euros. The trade surplus thus climbed significantly to 21.3 billion euros, the highest level since August 2024.
Sentiment in the German export sector has improved significantly. The ifo Barometer for export expectations rose to +9.6 points in August 2026, up from -2.8 points in July. This is the highest reading since February 2022 and the sharpest increase since June 2020.
Real (price-adjusted) new orders in the manufacturing sector rose by 2.5% in July 2026 compared with June 2026, after seasonal and calendar adjustment. Excluding large orders, order intake was 1.4% lower than in the previous month. In the less volatile three-month comparison, order intake from May through July 2026 was 2.9% higher than in the preceding three months.
Real (price-adjusted) production in the manufacturing sector fell by 1.1% in July 2026 compared with June 2026, after seasonal and calendar adjustment. In the less volatile three-month comparison, production from May through July 2026 was 0.4% higher than in the previous three months.
Inflation rises to 2.9% in August
Inflation in Germany rose again in August. Consumer prices increased by 2.9% compared to the same month last year.
Energy prices, in particular, have been rising recently. The war launched by the U.S. and Israel against Iran at the end of February has flared up repeatedly in recent weeks—following initial signs of détente. This has driven up oil prices in particular. Consumers continue to feel the impact of high energy prices, particularly at the gas pump, as fuel and heating oil are becoming even more expensive than crude oil itself due to blocked transport routes and reduced refinery capacity.
Services such as insurance and travel have also become more expensive—prices for these rose by 2.8%. The situation is quite different for food, where prices have stagnated. Nationwide, food prices rose by an average of 0.1%.
Unless the inflation outlook improves significantly, the European Central Bank is likely to raise interest rates from 2.25% to 2.50% at its next meeting in September.
Economic research institutes currently forecast an average inflation rate of 2.6% to 3.0% for 2026 and inflation of 2.0% to 3.0% for 2027:
Data retrieved: 8 September 2026
More than three million remain registered as unemployed
The number of registered unemployed in Germany rose by 54,000 in August compared to the previous month, reaching 3.061 million people. This figure is 36,000 higher than in August 2025. The unemployment rate rose by 0.1% from the previous month to 6.5%.
Beyond the usual seasonal pattern, there is little momentum in the labor market. The subdued trend of recent months continues.
Real wages in Germany continue to rise
Wages in Germany continue to rise faster than consumer prices. Gross monthly wages for employees, including special payments, rose by 4.1% in the second quarter compared with the same period a year earlier. If the 2.5% increase in consumer prices is subtracted, this leaves a real wage increase of about 1.5%. In the two preceding quarters, the increase was higher, at 1.8% and 1.9%.
However, comparing the figures to the same quarter last year overlooks the fact that workers’ purchasing power had previously suffered significant losses due to high inflation. Compared to the second quarter of 2019 — the period before various crises — real wages rose by 0.6%.
A survey of 400 CFOs from the largest international companies in Germany—based in the most important investor countries—reveals a continuing downward trend in key location factors, but also highlights the country’s strengths as a business location and new business areas. As part of our study “Business Destination Germany 2026,” we analyze the data and identify the most important areas for action.
You can find our key study findings, analyses, and recommendations for strategic adjustments focused on geopolitics, artificial intelligence, and sustainability in our white paper *From Fragmentation to Trusted Growth: What Matters for Leaders in 2026*.
The KPMG Global Navigator offers insights into global growth prospects, opportunities, and challenges.
Our CEO Outlook 2025, for which we surveyed 1,350 CEOs of large companies worldwide—including 125 CEOs in Germany—also provides assessments of the economic situation, generative AI, ESG, and other current topics.
Our Future Readiness Monitor 2025, for which 570 top decision-makers in the German business community were surveyed, also provides an assessment of German companies’ future readiness in light of new opportunities and complex challenges, as well as their investment plans and views on trends for the coming years.
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