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(Bloomberg) — Germany’s economy probably saw modest expansion in the second quarter that will continue into the third, according to the Bundesbank.
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Output is likely to have “increased slightly” between April and June, the central bank said Tuesday. That’s better than its previous prediction for stagnation, though growth in the three months through September is set to be weaker.
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A first estimate of second-quarter gross domestic product is due on Thursday, with a Bloomberg poll of analysts pointing to a slowdown to 0.1% from 0.3% in the previous period.
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“Overall, the current set of indicators points to a slightly higher underlying economic-growth rate than anticipated” in June’s projection, the Bundesbank said in its monthly report.
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The forecast underscores the resilience of Europe’s largest economy to the Middle East conflict and its fallout on energy prices, even if activity is easing compared with the surprisingly strong start to the year.
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Both the Bundesbank and the government forecast expansion of just 0.5% for the full 12 months, a blow to Chancellor Friedrich Merz who’d predicted 2026 would be a “year of growth” following a lengthy malaise.
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There have been positive signs of late. A key index of business expectations brightened much more than expected in July, while separate surveys suggested private-sector activity is growing again.
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The Bundesbank said manufacturers are benefiting from strong foreign demand and rising exports, while consumers are “relatively unfazed” by high energy costs. Major government outlays on infrastructure and defense, meanwhile, are supporting activity.
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Merz’ coalition has also announced reforms of pensions, income tax and bureaucracy. A separate Bundesbank study published Tuesday found red tape costs German firms about 7% of revenue a year, up from 5% between 2022 and 2024. That’s caused productivity growth to weaken by approximately half a percentage point, it said.
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Turning to inflation, the Bundesbank said a slight acceleration beyond the current level of 2.4% is expected in the coming months.
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