Germany posts marginal 0.2% growth in second quarter amid Iran war

The German economy grew 0.2% in the second quarter, providing a welcome glimpse of hope despite the effects of the Iran war, official figures showed on Thursday.

Gross domestic product (GDP) expanded despite soaring prices due to the conflict and Tehran's blockade of the Strait of Hormuz, a key waterway for the global oil and gas trade.

After two years of recession in 2023 and 2024 and marginal growth last year, Chancellor Friedrich Merz's government is seeking to revive the fortunes of the German economy, Europe's largest, with a massive programme of investment in infrastructure and defence.

Bbut the US-led war in the Middle East has had significant impacts on the global economy, with economists expecting Germany's GDP to grow by just 0.5% this year.

Exports, a key pillar for the German economy, expanded in the second quarter compared to the previous three months, the Federal Statistical Office said, citing preliminary figures.

German industry saw an increase in orders from abroad, while exports rose in May for the fourth consecutive month.

However, consumer spending remained subdued, while investment fell despite the multi-billion government scheme to improve infrastructure.

After only narrowly avoiding a third consecutive year of recession in 2025, the German economy expanded by 0.4% in the first quarter of 2026, according to revised figures from the statistical office.

Philipp Scheuermeyer, an economic expert at the KfW development bank, said that the economy had "got off to a positive start," but cautioned that growth in the second half of the year would depend "in particular on developments in the Middle East."

"The growth trend can continue even with a moderate rise in energy prices. However, if energy exports from the Gulf region remain stalled for too long, the energy price shock will ultimately take its toll," he said.

According to an analysis by the German central bank, the impact of the war on the German economy in the third quarter could be less severe than in the second quarter – provided the situation in the Middle East does not deteriorate further.

"However, the temporary supportive factors seen in the second quarter are also likely to reverse or disappear. Overall, GDP growth could then be slightly weaker," the Bundesbank said.