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. The service sector accounts for 70% 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 October 2026
Current insights in October 2026
- Economic growth
- Export
- Inflation
- Unemployment
- Business bankruptcies
Significantly higher growth expected
The German economy has recovered better than expected in the spring. In their joint economic assessment, leading economic institutes forecast gross domestic product growth of 1.3% this year. In their spring forecast, they had projected 0.6%.
The economic institutes cite an increase in exports as well as government spending on defense, infrastructure, and climate as reasons for the positive development. According to the report, an ongoing boom in artificial intelligence could provide additional momentum. Furthermore, the negative consequences of the war in Iran are not as severe as feared. While the energy price shock associated with the war has slowed the German economy, the higher prices for fuel and heating oil have so far had little impact on other consumer prices.
Business sentiment in Germany also improved in September. The ifo Business Climate Index rose to 89.9 points, up from 88.8 in August. This was due to significantly improved expectations and greater satisfaction with the current situation.
The public expenditure ratio, which indicates the government’s influence on a national 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 Germany’s 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, 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. The rate is also considerably lower in countries outside the EU, such as the United Kingdom (32.4%) or the United States (30.0%).
The 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 +1.4% for 2027. The most recent forecasts, in particular, paint a significantly more positive outlook.
Data retrieved: 8 October 2026
German exports fell in August compared to the previous month
The German export sector suffered a setback in August. At 137.6 billion euros, the value of goods—calendar- and seasonally-adjusted—was 0.8% lower than in the previous month. Imports, on the other hand, rose by 0.9% to a value of 118.1 billion euros.
This resulted in a decline in the German trade surplus to 19.5 billion euros, down from 21.6 billion euros in July. Compared to the same month last year, exports rose by 6.2% in nominal terms, and imports by 5.5%.
Sentiment in the German export sector deteriorated slightly in September. The ifo Barometer for export expectations fell to 8.0 points from 9.8 points in August. Nevertheless, the majority of companies remain confident.
Real (price-adjusted) new orders in the manufacturing sector fell by 10.6% in August 2026 compared with July 2026, after seasonal and calendar adjustment. Excluding large orders, new orders were 0.1% lower than in the previous month. In the less volatile three-month comparison, order intake from June through August 2026 was 1.3% higher than in the previous three months.
Real (price-adjusted) production in the manufacturing sector rose by 2.0% in August 2026 compared with July 2026, after seasonal and calendar adjustment. In the less volatile three-month comparison, production from June through August 2026 was 0.4% higher than in the previous three months.
Inflation rises to 3.3% in September
Record-high fuel prices drove inflation in Germany to its highest level since the end of 2023 in September. Prices for goods and services rose by 3.3% compared with the same month a year earlier, up from 2.9% in August.
Oil prices have at times risen above the $100-per-barrel mark due to the war in the Middle East. As a result, according to the ADAC, record prices for diesel and gasoline were reached on several occasions in September. Fuel is by far the biggest driver of price increases. The federal government therefore intends to provide relief to drivers once again. From October 1 through the end of the year, a fuel tax rebate will be in effect, reducing taxes on gasoline by about 17 cents per liter. This is expected to curb inflation through the end of the year, just as the previous fuel tax rebate did when it was in effect in May and June. However, fuel prices rose again after that rebate expired.
Economic research institutes are currently forecasting an average inflation rate of 2.6% to 3.0% for 2026 and inflation of 2.0% to 3.3% for 2027:
Data retrieved: 8 October 2026
Number of business bankruptcies rises to highest level in 13 years
Despite the economic recovery, the number of corporate bankruptcies in Germany rose to its highest level in 13 years in the first half of the year. Local courts reported 12,812 corporate insolvency filings, an increase of 6.7% compared to the same period last year. The last time there was a higher number in the first half of the year, according to , was in 2013, with 13,253 reported cases.
Per 10,000 companies, 36.2 became insolvent in the first half of the year. Corporate insolvencies were particularly frequent in the transportation and warehousing sector (71.6 cases per 10,000 businesses) as well as in the hospitality and construction industries (59.6 and 53.4 cases, respectively).
Consumer insolvencies have also risen. In the first six months, 38,932 cases were reported. This represents a 2.4% increase compared to the same period last year.
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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