German Economy Rises Despite Iran War Clouds: Q2 GDP Revised Up to 0.3%, Strong Exports Support Three Consecutive Quarters of Growth

According to APP Zhihui Finance, the German Federal Statistical Office released the latest data on Tuesday, showing that Europe’s largest economy grew faster in the second quarter than initially estimated. Against the backdrop of the Iran conflict driving up energy prices and global supply chain disruptions, Germany’s economy demonstrated unexpected resilience thanks to strong exports, registering quarter-on-quarter growth for the third consecutive period.

According to the revised data from the German Federal Statistical Office, Germany’s GDP grew by 0.3% quarter-on-quarter in the second quarter of 2026, an upward revision of 0.1 percentage point from the previously announced figure of 0.2% at the end of July. The growth rate for the first quarter was also revised upward to 0.4%, marking the first time the German economy has achieved three consecutive quarters of positive growth since the end of the pandemic.

Federal Statistical Office Director Ruth Brand stated in a press release: “The German economy continued the growth momentum seen at the start of the year, with growth primarily driven by strong export performance, similar to the first quarter.”

The revised figures show that goods exports rose by 2.6% quarter-on-quarter in the second quarter, significantly higher than the initial estimate. Analysts attribute part of this increase to overseas companies stockpiling German goods in advance out of concern that the conflict in Iran would drive prices higher and disrupt supply chains. Additionally, turnover in wholesale and retail trade also outperformed expectations, contributing to the overall upward revision.

From the GDP structure, net exports contributed 0.2 percentage points to growth. Private consumption and government spending each increased slightly by 0.1%, while capital investment unexpectedly declined by 0.2%, mainly due to a significant drop in investment in machinery and equipment. Imports also saw a notable rise, reflecting some recovery in domestic demand and company inventory restocking.

“Headwinds Amid War”

The data is particularly noteworthy given its timing—military actions by the United States and Israel against Iran had been ongoing for months, severely impacting the global energy market, with Europe bearing the brunt. As a manufacturing powerhouse highly dependent on energy imports, Germany was once considered one of the most severely affected developed economies.

However, the facts indicate that Germany’s economic performance under the shadow of war has surpassed market concerns. In recent months, both factory output and export data have shown a gradual upward trend. The revised data from the German Federal Statistical Office confirms that despite high energy costs and geopolitical uncertainties, the core competitiveness of Germany’s manufacturing sector and external demand have not suffered a dramatic collapse.

Nevertheless, this resilience does not mean there is room for complacency. The Bundesbank has already issued a warning last week, predicting that GDP growth in the third quarter could be marginal at best.

The central bank noted that water levels of the Rhine River have dropped to record lows, severely disrupting logistics and transportation for German industry. This most important inland waterway in Europe carries large volumes of raw materials and finished goods, and low water levels have significantly reduced barge capacity and driven up shipping costs. At the same time, the previous momentum from export growth is fading, and the “precautionary stockpiling” behaviour of overseas companies is unlikely to continue, putting pressure on export growth rates in the coming months.

Merz’s New Policies and Structural Challenges

In recent years, the German economy has fallen into prolonged stagnation, caused by multiple structural factors: the structural increase in energy costs following the Russia-Ukraine conflict, competitive pressure from the rise of Chinese manufacturing, and the persistent impact of tariffs imposed on German exports during the Trump administration.

At the start of 2026, the market placed high hopes on a strong rebound in the German economy. The newly appointed Chancellor Friedrich Merz introduced a large-scale fiscal expansion plan, focusing on defense and infrastructure construction, regarded externally as a key measure to break Germany’s long-standing fiscal conservatism and reignite economic growth. The coalition government also announced reforms affecting taxes, pensions, and administrative bureaucracy, aiming to attract private capital by improving the investment environment.

However, the outbreak of war in the Middle East has significantly dampened these optimistic expectations. Energy-intensive manufacturing has once again been hit by rising costs, and the German government has downgraded its full-year GDP growth forecast for 2026 from 1% to 0.5%. While this figure avoids recession, it remains insufficient to close the output gap accumulated over years of stagnation.