The Economic Situation in the Federal Republic of Germany in February 2026

Economy recovery is gaining stability

Economic development in Germany was slightly more favourable towards the end of 2025 than had previously been assumed: preliminary data published by the Federal Statistical Office shows that the German economy grew by 0.3% between Q3 and Q4 in 2025 (after adjusting for prices, calendar effects and seasonal variations) – slightly more than the initial estimate made in mid-January. According to the Federal Statistical Office, this growth was mainly driven by domestic demand, mainly private and public-sector spending. However, investment activities, chiefly in the construction sector, are likely to have also recovered, based on the data that is already available.

The latest indicators from the beginning of the year suggest that the economic recovery is continuing. Orders in the goods-producing sector were up appreciably at the end of the year – a development that was mainly driven by domestic demand. However, there have lately also been positive signals from foreign demand: foreign orders were up appreciably at the end of the year, largely from outside the eurozone, and goods exports in December showed the largest increase month-on-month seen in more than four years.

Even though industrial output shrank palpably in December, there is a continuous and marked improvement in new orders, suggesting a turnaround for the industrial sector in the coming months. It is against this background that business sentiment has recently brightened a little. The ifo Business Climate Index remained at 87.6 points in January, but sentiment in the goods-producing sector saw a marked improvement: companies were more content with their ongoing business and expectations were considerably less sceptical. Given the recent revival of foreign orders, export expectations also improved slightly. At the same time, the S&P Composite Purchasing Managers’ Index signalled a slight expansion of overall economic activity in January.

By contrast, development in the private services sector has recently slowed down a little. Consumer-related services stagnated, with the exception of the hospitality sector, which was able to appreciably increase its output. Business-related services slowed down their growth; a development that is also reflected in recent business surveys. These show that the business climate in the services sector has dimmed down a little, with companies viewing both the current situation and their expectations in a more sceptical light. Only the retail and wholesale sectors are more optimistic and markedly more content with their business situation. The indicators measuring consumer sentiment have also recently begun to show some improvement, though from a low starting point. The GfK Consumer Climate Survey indicates a slight recovery in February, with improvements in business and income expectations and also propensity to buy. The HDE consumer barometer has also been improving, attaining its highest reading in February since August 2025.

All in all, there is a growing number of signs that the economic recovery is stabilising from its fragile basis. The increase in demand resulting from the defence procurement and the Special Fund for Infrastructure and Climate Neutrality is likely to stimulate industrial output over the cause of the year, thereby propping up the recovery as a whole.

Global economy proves robust, but global trade is unstable

Global industrial production slowed down again in November compared to October, but remained 2.3% higher year-on-year. While the industrialised countries saw a slight expansion of their output between October and November, output from the emerging economies, particularly eastern European countries and China, shrank by 1.3%. For the beginning of 2026, the leading indicators suggest an increase in dynamism in the global economy: the S&P Global World Purchasing Managers’ Index (PMI) rose from 52.0 to 52.5 points in January. This puts it above the growth threshold of 50 points and is indicative of moderate economic growth. A slight improvement in sentiment compared to the preceding month was recorded in the services and industrial sectors alike. The financial markets are also beginning to expect a brightening of the economic situation. The Sentix index shows that sentiment among the financial agents has improved for the sixth consecutive time now with regard to global economic development. This was largely driven by expectations for Asia, but recently also by marked improvements in the expectations for the eurozone.

Global trade is continuing to go up and down. Following a decline in October, global trade in goods was up 2.2% again in November, compared to the preceding month. This is a strong 5.3% increase year-on-year. However, the data is less reliable than usual as no November data on US foreign trade is available as yet, due to the government shutdown. The container throughput data for late 2025 suggests that trade is on an upward trajectory. The RWI/ISL Container Throughput Index rose from 142.0 to 143.2 in December (figures adjusted for season) – mainly due to a significant increase in container throughput in the Chinese ports. By contrast, throughput in the European ports fell slightly in December, after a considerable increase.

In total, international organisations such as the IMF are expecting the global trade volume to slow down to 2 1/2% in 2026, down from growth of approx. 4% in 2025. On the one hand, the impact of increased tariffs and lasting uncertainty in trade policy is beginning to show as the frontloading effects seen in early 2025 are wearing off, meaning that analysts are expecting US imports, in particular, to fall. On the other hand, investments in the field of AI are expected to see a dynamic development and continue to remain an important driver of global trade, particularly semiconductors, processors and commodities required for high-tech applications.

Foreign trade up at the end of the year

Towards the end of the year, nominal exports of goods and services expanded again (+2.2%; adjusted for seasonal variations and calendar days) after a decline. While services exports dropped substantially by 5.6%, goods exports expanded by an unusually large margin of +4.9%. Goods exports to EU and non-EU countries significantly increased month-on-month, especially exports to the US (+8.9%) and to China (+10.7%). However, this was not enough to fully compensate the decline that had accumulated during the year: exports to the US are still well – 9.7% – below the level of December 2024. All in all, exports of goods and services expanded by 0.4% between Q3 and Q4. Nominal imports of goods and services were up +3,1% compared to the preceding month. Imports from EU countries and from third countries increased, with imports from the US and China growing especially strongly. Compared to Q3, imports in the final quarter of 2025 were up 2.1%. As imports grew more strongly than exports, the monthly surplus from trade in goods and services fell from €5.7 billion to €4.6 billion. The total external surplus in 2025 was €107.3 billion, which is a 36% less than the figure for 2024.

Import prices fell by 0.2% (seasonally adjusted) between November and December, having previously risen. This was due to lower costs for energy and raw materials. As export prices rose a little faster in this period (+0.1%), the terms of trade improved slightly by 0.3% month-on-month. In real terms, the increase in exports is likely to have been slightly less pronounced and that of exports slightly stronger.

The leading indicators for foreign trade improved at the turn of the year: according to the ifo export expectations, companies have recently been less sceptical about their foreign business, but sentiment did not brighten enough for the indicator to leave the negative zone in January (rise from -3.0 to -1.2 points). It is good news that the automotive sector and manufacturers of electric equipment are expecting to export more. However, expectations in the important machinery sector remain subdued.

There appears to be a revival in foreign orders. Driven by large orders, foreign orders saw their second consecutive rise in December, up a strong 5.6% between November and December (figure adjusted for season). While the order volume from the eurozone declined slightly that month, the three-month comparison still shows a strong increase (+6.2%).  Even with large orders excluded, foreign orders still developed favourably (+0.8%).

The export industry ended 2025, a year marked by large fluctuations, on an unexpectedly positive note. Taken together with the recent improvement in export expectations and the volume of foreign orders, this suggests that a slow revival might be around the corner at the turn of the year. The global economy is continuing to prove robust. Given the structural challenges and the persistently high level of geopolitical insecurity, however, all further development will remain fragile overall.

Output and new orders show mixed development in december

After three consecutive increases, output in the manufacturing sector weakened noticeably in December. Compared with the previous month, it fell by 1.9% after price, calendar and seasonal adjustment. For the entire fourth quarter, however, output in the manufacturing sector still remained close to 1% above the previous quarter and, calendar-adjusted, 0.4% above the level of the fourth quarter of 2024.

Industrial output in particular weakened significantly in December, declining by 3.0% compared with the previous month, while energy production also recorded a decrease (-1.8%). Only construction output increased significantly, rising by 3.0%.

Within the industrial sector, output among producers of capital goods, which had previously risen strongly, declined by 5.3%; the output among producers of intermediate goods also recorded a drop (-1.2%) compared with the previous month. Producers of consumer goods and consumer durables, by contrast, registered slight increases. In construction, activity picked up in December in both the construction sector proper (+4.4%), and in building construction (+8.4%) and civil engineering (+0.6%), which may partly be attributable to comparatively mild weather at the end of the year.

Individual industrial sectors once again showed an uneven development: output increases occurred mainly in other vehicle manufacturing (+10.5%), the manufacturing of data processing equipment, electric and optical products (+3.8%), the manufacturing of metal products (+3.2%) and the manufacturing of electrical equipment (+2.4%). By contrast, output declined in key sectors such as motor vehicles and motor vehicle parts (-8.9%), mechanical engineering (-6.8%), the manufacturing of chemical products (-2.4%) and pharmaceutical products (-1.8%), as well as in the repair and installation of machinery (-17.6%). Output in energy-intensive industries also fell by 0.9% month-on-month.

In a quarterly comparison, both industrial output (+1.0%) and construction (+1.8%) remained fairly robust at the end of the year. Only energy output was below the level of the third quarter (-1.2%).

In contrast to industrial output, new orders in manufacturing continued to rise strongly in December: order volumes (adjusted for price, seasonal and calendar effects) rose by a significant 7.8% compared with November. As in the previous month, large domestic orders were a key driver of new orders. Even excluding large contracts, orders still rose by 0.9% in December. Compared with December 2024, they were significantly higher (+13.0 per cent).

The strongest demand came once again from domestic customers, where orders – boosted by large contracts – rose by 10.7% month-on-month. Demands from countries outside the euro zone also rose strongly (+9.7%), while orders from the euro zone declined slightly by 0.6% compared to November.

Across individual goods categories, new orders increased compared with November, particularly among producers of capital goods (+10.5%) and intermediate goods (+5.7%), whereas orders for consumer goods and consumer durables declined.

Most industries recorded higher order volumes: the largest month-on-month increases were seen in metal products (+30.2%), mechanical engineering (+11.5%), electrical equipment (+9.8%), metal production (5.1%), and chemicals (+4.7%), driven by domestic orders and demand from outside the euro zone. Incoming orders in the important automotive industry, however, fell significantly by 6.3% compared with November, mainly due to declining orders from outside the euro zone. New orders in other vehicle manufacturing decreased by 18.7%, following very strong increases dominated by large orders in previous months, although demand from outside the euro zone recently picked up again.

For several months now, large domestic orders - particularly in connection with public procurement related to the modernisation of the Federal Armed Forces as well as projects under the special fund for infrastructure and climate neutrality - have caused fluctuations in monthly incoming orders. By contrast, foreign orders have tended to develop more weakly and with greater fluctuations in light of trade and geopolitical uncertainties.

Overall, industrial activity presented a mixed picture at the end of the year. While the latest output figures slightly dampened the initial situation, the decline in December should be seen more as a “breather” following the noticeable expansion of output in the previous months. The strong increase in new orders, driven primarily by domestic demand, indicates a continued recovery of industrial output in the coming months.

Retail sales stagnate; consumer sentiment slightly improved

Seasonally and price-adjusted retail sales (excluding motor vehicles) rose by a modest 0.1% in December compared to the previous month, following a slight downward revision of November’s figures. While retail sales in the food sector increased by 1.5% compared to the previous month, non-food retail sales fell by 1.2%. Compared to the same month of the previous year, retail sales in December showed a 1.4% increase, with food sales rising by 2.4% and non-food sales by 0.7%. In the fourth quarter of 2025, overall retail sales also showed a slight upward trend, increasing by 0.3%, although the relative performance of non-food sales was declining and weaker than that of food sales (+1.1%). For the full year 2025, retail sales (preliminary data) grew by 2.7% in real terms (compared to +1.2% in 2024), with online and mail-order trade being the main driver of this growth. However, this growth also included a special effect, as it was the first time sales from a major online retailer were included.

In the hospitality sector, turnover in November increased nominally by 2.8% and by 2.5% (price-adjusted) compared to the previous month. Year-on-year, the hospitality sector recorded a nominal increase in turnover of 2.2%, but a real decline of 1.2%.

New passenger car registrations in January dropped by 9.5% compared to the previous month and by 4.2% in the three-month comparison. Year-on-year, the decline was 6.6% compared to January 2025. Registrations by private individuals fell by 14.4% compared to January 2025, and by 13.9% month-on-month, as well as by 4.5% in the three-month comparison. Registrations by businesses and self-employed individuals decreased by 7.3 compared to the previous month, also showing declines in both the three-month and year-on-year comparisons.

After a slight pick-up in private consumption towards the end of 2025, leading indicators suggest that positive consumer trends will continue into the beginning of the year. According to GfK’s forecast, the consumer climate will improve by 2.8 points to -24.1 in February, after falling by 3.5 points to -26.9 in January. This improvement was primarily driven by a significant rise in income expectations. The propensity to purchase also increased, while the savings propensity only decreased slightly, remaining at a high level. Economic expectations, which are not included in the GfK Consumer Climate Survey, rose significantly. The HDE consumer barometer recorded a second consecutive increase in February. The ifo Business Climate Index for the retail sector (including motor vehicles) rose by 4.5 points to -24.0 in January. This improvement was based on significantly higher business expectations, which, however, remained negative at -27.0 points. The current business situation was also assessed less pessimistically than in December. Overall, the mood suggests a slight improvement in consumer sentiment at the start of 2026, although indicators remain predominantly negative, signalling ongoing consumer caution. While consumer sentiment has brightened somewhat due to wage increases, including those resulting from the minimum wage rise on 1 January 2026, and reduced inflation concerns, a sustained recovery in private consumption is likely to depend significantly on the further development of the labour market.

Inflation slightly up at the start of the year

The preliminary inflation rate in January was 2.1% compared to the previous year, slightly higher than the December rate of 1.8%. Compared to the previous month, consumer prices rose by 0.1%. Core inflation in January stood at 2.5%, again well above overall inflation. Service prices rose by 3.2%, while goods prices increased by 1.0%. Food price inflation accelerated to 2.1%, which is roughly in line with the 12-month average. Energy prices fell by 1.7%.

Inflationary pressure continues to be primarily driven by services, with rising prices in labour-intensive sectors accounting for the bulk of overall inflation, offsetting the price-dampening effects of falling energy prices. Additionally, food prices have risen disproportionately while the price increase for industrial goods remained moderate. Overall, inflation is still being driven by domestic factors, particularly wages and costs in service sectors such as healthcare, social services and long-term care, while import and energy prices continue to exert a relieving effect. Mitigating effects are also emerging from government measures such as reduced network charges, the abolition of the gas storage neutrality charge, and tax relief in the hospitality sector. At the producer level, lower prices for agricultural goods are likely to have a price-dampening effect on food prices in the medium term, while industrial goods prices have recently stabilised, and service prices continued to rise.

Labour market outlook remains cautious at the start of the year

The labour market remains stagnant. In January, seasonally adjusted unemployment remained unchanged (+0), although underemployment decreased slightly (-4,000). The number of employed persons fell by six thousand in December, and employment subject to social security contributions also declined slightly in November (-5,000). Compared to the previous year, the decrease was more pronounced, with a drop of 17,000 people, which also reflects ongoing demographic change. The take-up of short-time work increased slightly in November (+6,000), remaining at an elevated level.

Leading indicators do not yet suggest a recovery of the labour market: the IAB employment barometer remained at 100.1 points in January, roughly at the threshold for expansion. Although the ifo employment barometer rose significantly compared to December, it only reached 93.4 points, which is the average of the previous year. The demand for labour remains weak in industry and retail, while the employment outlook in the services sector has improved somewhat. A noticeable increase in employment in the construction sector is not expected at this stage. Overall, the labour market remains stagnant at the beginning of the year.

Corporate insolvencies remain at a high level

The bankruptcy indicator from the Institute for Economic Research in Halle, which is methodologically narrower and more current than the official statistics, recorded 1,391 insolvencies among partnerships and corporations in January, a decrease of 8% compared to the previous month, but an increase of 4% compared to January 2025. The number of affected employees (16,865) rose by 10% compared to the previous month and was 18% higher than in January 2025.

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¹ This report is based on data that were available as of 13 February 2026. Unless stated otherwise, these are rates of change against the respective preceding period on the basis of price-adjusted figures which have also been adjusted for calendar-day and seasonal variations.