Germany: Resilient but modest recovery – Commerzbank

Commerzbank’s Chief Economist Dr. Jörg Krämer notes that leading indicators such as the Ifo business climate index and PMIs have surprised to the upside, showing the German economy’s resilience to high energy prices and the Iran War. Nevertheless, he forecasts only a moderate recovery, with German GDP growth of 1.2% in 2026, constrained by weak corporate investment and exports.

Resilience offsets energy and trade shocks

"The ifo business climate index has risen surprisingly sharply (from 88.8 to 89.9), just like yesterday’s purchasing managers’ index. Apparently, companies have shaken off the recent massive surge in energy prices. The German economy is more resilient than expected."

"However, we expect only a moderate recovery (1.2% for 2026). Due to the lack of far-reaching reforms, the battered competitiveness of Germany is not improving decisively, which is why companies will remain reluctant to invest domestically. In addition, exports are suffering from weak exports to China and from Trump’s tariffs."

"Not only the ifo business climate index, but also other leading indicators such as the PMIs and incoming orders have delivered positive surprises in recent months. It is mainly for this reason that two weeks ago we raised our 2026 growth forecast for Germany from 1.0% to 1.2%."

"However, we still expect a weak recovery. Since early 2024, when German GDP passed its trough, corporate investment has declined. The absence of profound reforms to improve Germany’s battered competitiveness argues against corporate investment rebounding strongly, as is usually the case in upswings."

"As a result, the economic recovery depends far more than usual on rising government spending on consumption (increasing public-sector employment, healthcare) and investment (including defence). The German economy is still a long way from a self-sustaining upswing."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)