Europe’s industrial engine shows signs of renewed momentum.
Berlin
Germany’s economy expanded more strongly than initially estimated in the second quarter of 2026, offering fresh evidence that Europe’s largest economy may be gaining momentum after years of weak performance. Revised official figures show that gross domestic product increased by 0.3% between April and June compared with the previous quarter, above the preliminary estimate of 0.2%. On an annual basis, GDP grew by 1%, also exceeding the earlier estimate of 0.9%. The improvement comes despite energy disruption associated with the Iran war and the closure of the Strait of Hormuz.
Exports emerged as the principal engine of growth, rising 2% from the previous quarter, while imports increased by 1.5%. Manufacturing output advanced by 0.9%, supported particularly by the chemicals and electrical equipment industries, while most service sectors also recorded growth. Domestic demand remained comparatively weak, however, with both household and government consumption increasing by only 0.1%. Investment also declined slightly as spending on machinery and equipment fell, highlighting persistent vulnerabilities beneath the stronger headline numbers.
Business confidence is simultaneously improving. Germany’s Ifo Business Climate Index climbed to 88.8 in August from 86.7 in July, exceeding economists’ expectations and registering improvement across major sectors. The combination of stronger exports, increased industrial production and improving sentiment provides a more encouraging picture for an economy that has struggled with high energy costs, intensified Chinese competition and trade pressure from the United States. Yet the recovery remains dependent on external demand at a time of considerable geopolitical uncertainty.
Chancellor Friedrich Merz is seeking to reinforce the rebound through greater investment in defense and infrastructure, but the government has already reduced its growth expectations for 2026. Berlin now forecasts expansion of only 0.5% for the year, down from an earlier projection of 1%, reflecting the economic consequences of higher energy prices and international instability. Germany’s latest figures therefore represent a meaningful improvement rather than a definitive turnaround. The industrial engine of Europe is accelerating again, but its recovery remains exposed to forces far beyond its borders.
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