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Weak export and industrial data have cast doubt on the strength of Germany’s recovery after years of stagnation, even before any shock from the recent rise in energy prices.
The “entire German economy” had a “very weak start to the new year,” ING global macro head Carsten Brzeski said on Tuesday after trade data for January showed a 2.3 percent monthly decline in exports and a 5.9 percent drop in imports.
The bigger-than-expected declines came a day after Germany’s statistics agency reported that output in the all-important manufacturing sector fell for a second straight month in January.
The data does not take into account any shocks from the recent surge in oil and gas prices due to the war with Iran, raising questions about whether Europe’s largest economy can recover in 2026.
“Our optimism about Germany’s growth prospects has taken a hit,” Brzeski wrote in a letter to clients, adding that the country’s manufacturers were hit by US tariffs and fierce competition from Chinese rivals.
Order intake fell by 11 percent in January due to a decline in volatile large-ticket orders. “The decline in the industry was very broad-based,” economists at Goldman Sachs said.
The sharp drop in imports in January could point to underlying weaknesses in the domestic economy, although it did mean that Germany’s trade surplus rose 21 percent to 21 billion euros.
“A decline in imports poses an upside risk to overall GDP growth this year,” wrote Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics.
Economists had hoped that Chancellor Friedrich Merz’s billion-dollar investment package would help Germany finally return to higher growth this year after years of recession. In 2025, the country’s GDP grew for the first time since 2022, registering a growth of 0.2 percent.
A stronger-than-expected performance in the last three months of 2025, when GDP grew 0.3 percent compared to the previous quarter, fueled optimism that growth could improve to 1 percent this year.
The closely watched Ifo index of Germany’s business environment rose slightly more than expected in February, but investor morale, as reflected in the ZEW indicator, unexpectedly fell.
The likelihood of higher interest rates in the wake of the recent energy price shock could provide new headwinds.
Estonia’s central bank governor, Madis Müller, said on Tuesday it was more likely that the “next change” in the European Central Bank’s policy rate would be “an increase”. However, he also emphasized at an event in Vilnius, Lithuania, that policymakers should not rush into action. The ECB will then decide on borrowing costs on March 19.
However, economists at BNP Paribas have argued that Germany’s increased government spending will lift the country out of the economic gloom.
“While we remain optimistic about full-year growth prospects, recent data reminds us that the recovery process is likely to be non-linear,” BNP economist Paul Hollingsworth told the FT on Tuesday, adding that “renewed energy price headwinds from the conflict in the Middle East are another source of downside risk.”
Merz last year opened the door to a €1 trillion fiscal stimulus over the next decade by excluding large parts of the defense budget from the country’s tight constitutional debt brake and earmarking €500 billion for additional infrastructure investment.
