Growth and Inflationary Pressures in the German Economy
The report notes that high energy prices, rising financing costs and global uncertainties are limiting economic activity.
According to the monthly report published by Germany’s Federal Ministry for Economic Affairs and Energy, the country’s economy experienced a temporary slowdown during the summer following a recovery in the first half of the year. Nevertheless, the report states that the economy remains on a recovery path.
The report notes that high energy prices, rising financing costs and global uncertainty are limiting economic activity. The course of the ongoing wars in Iran and Ukraine is also among the key factors affecting Germany’s economic outlook.
However, industrial production in Germany increased by 2% in August compared with the previous month. Investments in artificial intelligence, the defense industry and infrastructure are considered key factors supporting economic growth.
Inflationary pressures remain. Consumer prices rose by 3.3% year-on-year in September. An approximately 15% increase in energy prices was one of the main drivers of inflation. Food prices rose by 0.4%, while service prices increased by 2.7%. Core inflation remained at 2.4%.
The labor market is also showing signs of weakening. The number of unemployed people increased by 12,000 in September, while the number of employed people fell by 29,000 in August.
Meanwhile, the German government raised its economic growth forecast for 2026 from 0.5% to 1.3%. The Organisation for Economic Co-operation and Development (OECD) also increased its forecast from 0.7% to 1.1%.
However, the economic recovery and rising government borrowing are putting pressure on the budget deficit. The deficit is expected to reach 4.1% of GDP in 2026 and 4.7% in 2027. If high energy prices persist, the financial difficulties facing both businesses and consumers could intensify.