Downward revision of the growth forecast 

In the first quarter of 2026, the German economy grew by 0.3%. Since then, however, sentiment has deteriorated once again due to the effects of the war in Iran. Potential disruptions to supply chains and higher energy prices are dampening economic growth in the current year. As a result, growth forecasts for 2026 have been revised downward once again.

The labour market continues to weaken 

For the first time in 15 years, the seasonally adjusted unemployment figure has risen above 3 million again. The number of people in employment also peaked several months ago. Following a decline of 16,000 in February, the figure fell by another 25,000 in March. Germany is losing primarily well-paid jobs in the manufacturing sector, while jobs are being created in nursing and healthcare as well as in public administration.

Interest rate hike likely in June 

Pressure on the ECB to act is mounting as the Iran conflict drags on. Inflation in the eurozone rose to 3.0% in April. After the ECB kept the deposit rate unchanged at its last meeting, a 25-basis-point increase is expected in June. With a key interest rate of 2.25%, monetary policy is likely to approach neutral territory.

Fiscal policy remains the main pillar 

Despite the debt relief program, the German economy is failing to gain momentum. Structural problems persist, and sentiment indicators have recently deteriorated once again. If the Strait of Hormuz remains blocked in the coming months, growth prospects will deteriorate accordingly. Foreign trade is holding back growth, and consumption is being weighed down by subdued income expectations. Fiscal policy remains the main driver of the economy in 2026.

Key figures at a glance

As of May 2026. Sources: Julius Baer Research, Federal Employment Agency, Federal Statistical Office (Destatis)