Germany is expected to face economic stagnation in Q2 – Bundesbank

In the second quarter, the German economy will remain stagnant due to the consequences of the war in the Middle East. This is the forecast provided by the Bundesbank in its monthly report.

According to the report, higher inflation and the associated loss of purchasing power are affecting private consumption and, consequently, service providers. High energy prices and worsening supply issues are also hampering industry and construction on the supply side.

However, Bundesbank economists also point to stabilizing effects for some industrial sectors—the factor of anticipatory demand in anticipation of shortages may also have contributed to the growth in new orders. However, this situation is likely to be short-lived.

The German central bank expects the negative impact of the war with Iran to put increasing pressure on industry in the coming months.

Inflation in the country remains high. In the first quarter of 2026, consumer prices rose significantly compared to the previous quarter, mainly due to higher energy prices.

Inflation in the services sector slowed somewhat but remained above average by historical standards.

Following a significant increase in March, annual inflation rose slightly in April to 2.9%. It is likely to remain high over the coming months. However, the trajectory of this trend depends primarily on the development of the conflict in the Middle East and is therefore highly uncertain.

As a reminder, German steelmakers increased steel production by 9.5% year-on-year in April 2026, reaching 3.23 million tons. At the same time, production fell by 3.3% compared to the previous month.