Wiesbaden. The German economy grew surprisingly despite the heavy burdens caused by the Iran war and the low water levels in the summer. There is also positive news when it comes to inflation: According to preliminary figures from the Federal Statistical Office, the inflation rate fell significantly to 2.8 percent in October with the new fuel discount - after 3.3 percent in September. However, according to economists, it is still too early to give the all-clear when it comes to consumer prices - and the economic upswing still has to prove how sustainable it is.
In the third quarter, gross domestic product increased by 0.2 percent compared to the previous quarter, as the Federal Statistical Office calculated based on initial data. After four quarters of growth in a row, it is becoming increasingly clear that Europe's largest economy will be able to record robust growth again in 2026 after three lean years.
Economists had expected stagnation in the third quarter, not least because of the low water levels. “The data shows that the economy is still doing better than expected,” says Jens-Oliver Niklasch, economist at Landesbank LBBW.
According to the Federal Office, consumer spending increased slightly between July and September. "Private consumption was the growth driver in the summer quarter. The higher energy prices did not spoil the purchasing mood of private households," analyzes KfW chief economist Dirk Schumacher.
However, significantly increased prices for refueling and heating are causing problems for consumers - despite the refueling discount. In October, people in Germany had to pay 12.2 percent more for fuel and household energy than a year earlier. Food prices hardly increased, and price pressure for services continued to ease.
It is still too early to give the all-clear on inflation, says Commerzbank chief economist Jörg Krämer. Like other economists, he expects that the massive rise in energy prices will gradually have an impact on the prices of other goods and services. “Inflation will probably be above 3 percent again at the turn of the year,” predicts Krämer.
Investments fell in the third quarter. Exports also developed weaker. “The development of exports, which was still very dynamic in the first half of the year, weakened noticeably in the third quarter of 2026,” the statisticians wrote.
The record low water levels in the summer stalled the recovery of the German economy somewhat. In the first two quarters, the economy grew by 0.4 percent and 0.3 percent, respectively, compared to the previous quarter. But the feared stagnation in the summer did not materialize.
There is also slightly positive news from the labor market: the number of unemployed in Germany fell by 40,000 to 2.955 million in October compared to the previous month, as the Federal Employment Agency (BA) announced. The unemployment rate fell by 0.1 points to 6.3 percent.
However, the decline is relatively weak. “The economic conditions are still not sufficient for an improvement in the labor market,” said BA boss Andrea Nahles. Compared to October 2025, the number of unemployed increased by 44,000.
The fact that the German economy remains robust despite all the crises gives hope that the economic dry spell will end. “The recovery is likely to continue in the coming quarters,” says Nils Jannsen from the Kiel Institute for the World Economy (IfW).
The mood in company executives had recently continued to improve - according to the Ifo Institute, for the sixth month in a row. And according to the latest Ifo survey, expectations that the export business will pick up are better than they have been since the start of the war in Ukraine in February 2022.
The federal government expects 1.3 percent growth for the year as a whole. Other forecasts are even more optimistic. In 2025, GDP increased by 0.2 percent, before that there was a minus for two years in a row.
However, the conflict between the USA and Iran, which is fueling oil and gas prices, remains unresolved. More and more companies are planning price increases. “Companies are reacting to the sharp rise in prices for crude oil and natural gas, which reached their highest level since 2022 in the second half of October,” says Ifo economics chief Timo Wollmershäuser.
Many people are already holding on to their money, as the latest consumer climate study by the Nuremberg institutes NIM and GfK showed. A YouGov survey for Postbank found that four out of ten households have to resort to savings because of increased prices.
A large part of the upswing is driven by the government's billions for infrastructure and defense. ING chief economist Carsten Brzeski points out that “a few quarters of upswing do not automatically mean a sustainable recovery.”
According to LBBW economist Niklasch, it will become clear in 2027 whether the economic recovery is just a flash in the pan: “For permanently higher growth, investments would have to increase more strongly, which is not the case so far.”
