German Economy Grows More Strongly in Spring – State Deficit Remains High

Industry benefited in particular. As the Federal Office explains, orders from the state for infrastructure and defense have risen significantly in recent months. This means more money flows into the construction of roads, bridges, and rail lines as well as into equipment for the Bundeswehr. Such major contracts give the factories planning security and stimulate production.

In international comparison, however, Europe remains a difficult environment. Demand from important export markets is subdued, and global trade is also under pressure. The German economy, which is heavily dependent on exports, can only partially benefit from this. Nevertheless, according to the Office's assessment, the spring increase is stronger than in recent quarters.

Deficit Above EU Threshold

At the same time, concerns about public finances are growing. The combined deficit of the federal government, states, municipalities, and social security systems stood at 3.1 percent of GDP in the first half of the year. This figure exceeds the upper limit of 3.0 percent set out in the European Union's Stability Pact. The Stability Pact is intended to prevent states from accumulating too much debt.

The development shows, in the view of economists, a field of tension: on the one hand, state demand – for example, through defense and infrastructure spending – supports the economy. On the other hand, rising spending is burdening the budget and causing the debt ratio to grow. The Bundesbank had recently pointed out these risks on several occasions and called for a more solid fiscal policy in the medium term.

Outlook: Continuation of the Upward Trend Possible

For the coming months, experts expect the upward trend to continue, provided energy and interest costs do not rise sharply again. The federal government is planning additional investments in transportation networks and in digitalization, which could further support demand. Uncertainties remain, however, with regard to foreign trade and the global economy.

The statisticians emphasize that the available figures are preliminary and may still be revised in the coming weeks. For a well-founded assessment of the full year 2026, the further course of the year is decisive. The next comprehensive picture of the economic situation will appear in the autumn.

The upcoming order and production data from the manufacturing sector as well as the budget closings of the federal and state governments will show whether the upswing holds. Observers are paying particular attention to whether high state demand is supplemented by private investment so that growth is more broadly based.

In historical comparison, the situation remains tense despite the spring recovery. Germany experienced several quarters of stagnating or shrinking economic output over the past two years. The current increase marks, in the Federal Statistical Office's assessment, a turning point, without there already being talk of a sustained upswing.