Germany: GDP Recovery Prospects Strengthen — Deutsche Bank

Deutsche Bank's latest report shows that Germany's economic growth in the first half of 2026 is stronger than previously expected, with the full-year GDP growth rate expected to approach 1%, a clear upward revision from the bank's previous forecast of 0.5%. This adjustment reflects that the momentum of Germany's economic recovery is building, though the pace remains uneven across quarters.

**Recovery Momentum Driven by Domestic Demand and Improving Orders**

The report notes that with water levels on the Rhine recovering, the disruption to industrial activity from short-term transportation bottlenecks should remain within a manageable range. Earlier market concerns that low water levels could push up logistics costs and weigh on output along the river industrial belt have now eased. However, Deutsche Bank also cautions that the third quarter may see a temporary pause in growth, indicating that the recovery path is not a straight line upward.

**Divergent Forecasts Reflect Uncertainty in the Recovery**

Notably, there are clear differences among institutions regarding Germany's 2026 growth outlook. In an earlier public statement, Deutsche Bank's research unit had projected a growth rate of 1.5%, based on expectations of large-scale expansionary fiscal measures, private sector investment plans, and support from household demand. In contrast, the German Council of Economic Experts forecasts that potential output will grow by only 0.4% annually over the next two years, taking a more cautious stance. Deutsche Bank's latest full-year forecast of "close to 1%" sits between these two figures, suggesting the bank retains some reservations about the pace at which fiscal stimulus effects will materialize.

**Structural Constraints Remain Unresolved**

After contracting for two consecutive years in 2023 and 2024, Germany's economy achieved only marginal growth of 0.2% in 2025. Although manufacturing orders surged 10% quarter-on-quarter in the fourth quarter of last year—the strongest cyclical rebound since the post-pandemic recovery in 2021—structural issues such as design flaws in the "debt brake" mechanism and chronic underinvestment in public infrastructure continue to cap medium-term potential growth. Deutsche Bank's upward revision this time reflects more a cyclical improvement than a trend increase in the potential growth rate.