German economy showed resilience in Q2, Bundesbank reports

• The German economy likely experienced modest growth in the second quarter.
• Resilient industrial sector and steady consumer spending contributed to growth.
• High energy and commodity costs due to the war are a significant drag.
• The Bundesbank anticipates less severe strain from the war in the third quarter, provided the Middle East situation does not escalate.
• Inflation is expected to accelerate in the coming months due to rising energy costs.

The German economy likely experienced modest growth in the second quarter, demonstrating resilience despite challenges from the war in the Middle East, according to a monthly report from the Bundesbank. The industrial sector, benefiting from strong foreign demand and exports, and consumer spending, which remained relatively stable despite high energy prices, were key contributors.

While the war has increased energy and commodity costs, potentially offsetting some of the boost from government spending, the Bundesbank noted that the strain on the economy could lessen in the third quarter if the Middle East situation does not escalate further. However, the overall growth outlook remains subdued as one-off positive factors are expected to fade.

The Bundesbank previously forecast 0.5% growth for the full year 2026, accelerating to 0.8% in 2027, though figures from the European Commission and IMF are slightly more optimistic. Inflation is also a concern, with the bank anticipating further acceleration in the coming months due to indirect effects of higher energy costs.