Non-final working translation

The Bundesbank experts will present their new forecast for Germany on Monday, 15 June 2026. The webinar will provide a forum for an exchange of opinions and perspectives on selected issues. It is aimed at national and international observers of the German economy, including representatives from the financial sector, research institutions, associations, firms and the public sector. Register here for participation

The German economic recovery, which had just begun in the winter half-year, will initially be slowed by the war in the Middle East. The sharp rise in energy prices will dampen households’ purchasing power and consumption expenditure. It will also weigh on firms’ costs. In addition, firms will also face increased supply bottlenecks and, in many cases, weaker demand. Elevated uncertainty and higher interest rates will be a drag on private investment.

Expansionary fiscal policy will be the only thing preventing a decline in gross domestic product (GDP) in the summer half-year. It will provide a strong boost to growth through to the end of the forecast horizon: the cumulative contribution to GDP growth up to 2028 is estimated to be around 1.3 percentage points. Rising defence expenditure will be particularly important here.

After the weak summer half-year, economic activity will gradually gain momentum. It will be supported not only by continued fiscal expansion but also by falling energy prices and an improving global economy. Calendar-adjusted real GDP will rise by 0.5 % in 2026, 0.8 % in 2027 and 1.4 % in 2028. As this year and next will have more working days, unadjusted GDP rates will then be somewhat higher (2026: 0.7 %, 2027: 0.9 %), but a little lower (1.2 %) in 2028.

This means that aggregate capacity utilisation will gradually improve again. That is because the German economy’s potential output will grow at significantly slower rates of between 0.4 % and 0.3 % per year. Structural barriers such as a shortage of skilled workers, comparatively high labour and energy costs and stiff global competition persist and are dampening potential growth.

The government deficit ratio will increase from 2.8 % in 2025 to 4.9 % in 2028. The debt ratio will climb to nearly 70 %.

The labour market recovery will be postponed: employment will initially fall slightly and will not rise markedly again until mid-next year.

Wages will continue to rise steeply, albeit at a markedly weaker pace than before. Nonetheless, non-wage labour costs will go up sharply – especially in 2028. Domestic price pressures from labour costs will therefore ease only temporarily.

The energy price shock will initially push up inflation: the inflation rate as measured by the HICP will rise to 2.9 % in 2026 and then fall only slightly to 2.7 % in 2027. Only in 2028 will it come down significantly to 1.9 % – due in part to the price-dampening changeover of the national carbon price to the EU ETS2. Core inflation excluding energy and food will fall only slowly from a high level. In this context, lower growth in unit labour costs this year and next year will be counteracted by perceptible indirect effects of rising energy prices.

Risks are clearly tilted to the upside for inflation and to the downside for economic activity: an even stronger energy price shock in connection with the situation in the Middle East, in particular, could significantly dampen GDP growth and raise inflation sharply.

**Table 1.1: June 2026 forecast**
Year-on-year percentage change
Item	2025	2026	2027	2028
Item	0.3	0.5	0.8	1.4
Real GDP, calendar adjusted	0.2	0.7	0.9	1.2
Real GDP, unadjusted	2.3	2.9	2.7	1.9
Harmonised Index of Consumer Prices	2.8	2.6	2.5	2.3
Source: Federal Statistical Office (data as at 27 May 2026). Annual figures for 2026 to 2028 are Bundesbank forecasts.

The Bundesbank finalised the Forecast for Germany on 27 May 2026. It was incorporated into the projection for the euro area published by the ECB on 11 June 2026.

1 Key aspects of the macroeconomic outlook

In the last winter half-year, the German economy had transitioned more clearly onto a path of recovery than anticipated. After seasonal adjustment, GDP rose by a cumulative 0.6 % in the fourth quarter of 2025 and the first quarter of 2026, and by markedly more than had been expected in the Bundesbank’s December 2025 Forecast for Germany.[1] Manufacturing, in particular, solidified more strongly than suggested six months ago by the leading indicators. Its value added grew perceptibly, and exports also rose markedly. As industrial activity improved, firms kept their investment more stable than expected. In addition, household consumption expenditure was somewhat buoyant and government spending significantly more lively than projected. However, the stronger rebound in activity has not yet had any impact on the labour market.[2] The labour market even weakened slightly more strongly than expected, and strong wage growth slowed down somewhat more quickly. Consistent with this, the inflation rate – as measured by the Harmonised Index of Consumer Prices (HICP) – declined slightly more sharply up to February than projected.[3] In March, however, it rose markedly to 2.8 % as a result of the outbreak of the war in the Middle East and the sharp rise in crude oil prices, thus exceeding expectations by 0.7 percentage point.

Underlying conditions of the forecast

The consequences of the war in the Middle East are initially throttling the economic recovery. The impact of the war is a perceptible drag on the German economy. This is already the case in the forecast baseline, which assumes that the conflict will calm quickly and that crude oil prices will already go back down markedly in the second half of the year. This assumption follows the expectations priced in on the futures markets as at the cut-off date[4] (see chapter “Assumptions regarding the international environment, exchange rates, commodity prices and interest rates”). However, it also entails considerable risks, which are addressed, amongst other things, by means of an alternative scenario (see chapter “Risk assessment” and supplementary information "A severe risk scenario that covers the potential impact of the war in the Middle East on the German economy"). The disruptions to economic activity caused by the war are already considerable – and this includes Germany: sharp rises in crude oil and natural gas prices are eroding the purchasing power of households, who, in addition, are unsettled. They are therefore reining in their consumer spending. The price increases are also weighing on the cost side of firms, which are also facing increased supply bottlenecks and, in many cases, weaker demand. At the same time, heightened uncertainty is dampening business investment, which is also being constrained by markedly higher lending rates. These burdens are also impacting on private residential investment. Only in some areas of the export-oriented industrial sector will there probably be short-term bolstering effects, for example because demand for intermediate goods has gone up in anticipation of increasing supply bottlenecks, or individual economic sectors are benefiting from the fact that war-induced supply outages are affecting competitors from other countries even more severely. Overall, the headwinds caused by the war are likely to completely cancel out the impetus from expansionary fiscal policy in the current summer half-year. However, due to the latter, even in spite of the severe turmoil roiling the international commodity markets, GDP is set to still stagnate in the second quarter and rise slightly in the third quarter (see chapter “Details of the short-term GDP forecast”).

Over the remainder of the forecast horizon, the German economy will gradually pick up considerable steam. This is because the effects of the war are assumed to fade away, with fiscal policy providing a strong boost. Energy prices will continue to fall, uncertainty will ease and the global economy will grow more strongly again (see chapter “Assumptions regarding the international environment, exchange rates, commodity prices and interest rates”). This means that, first, households’ real disposable incomes will start to go back up, and consumers will increase their consumer spending moderately. From mid-2027 onwards, they will increase their consumption even somewhat more strongly, because precautionary motives will then become less relevant as the labour market recovers and uncertainty eases. Second, exports will gradually pick up steam, even though they are lagging behind the pace of foreign demand growth owing to the German economy’s structural competitiveness problems.[5] Third, business investment will grow markedly again from 2027 and gain more momentum in 2028. It will be initially supported by fading uncertainty and then by a resurgence of capacity utilisation. Meanwhile, private residential investment will show a nearly unbroken moderate rise (see chapter “Forecasts of expenditure components of GDP”). The German economy will experience strong growth boosts throughout the entire forecast horizon as a result of the strong easing of fiscal policy. The cyclically adjusted government deficit ratio will rise by 2.4 percentage points up until 2028. This impulse is estimated to cumulatively contribute just over 1.3 percentage points to expected GDP growth in Germany between 2026 and 2028. The forecast contains an implied fiscal multiplier of almost 0.6.[6] Rising defence spending is set to be the most significant factor (see chapter “Fiscal assumptions”).

Impact of expansionary fiscal policy

The pace of macroeconomic expansion will thus accelerate from year to year. Calendar-adjusted real GDP will increase by 0.5 % in 2026, 0.8 % in 2027 and 1.4 % in 2028.[7] As 2026 and 2027 each have more working days than the previous year, unadjusted GDP rates will be somewhat higher at 0.7 % and 0.9 %, respectively. On the other hand, a negative calendar effect in 2028 will result in a somewhat lower rate of 1.2 %.

**Table 1.2: Technical components of the** **GDP** **growth forecast**
% or percentage points
Item	2025	2026	2027	2028
Statistical carry-over at the end of the previous year¹	0.1	0.1	0.1	0.5
Fourth-quarter rate²	0.4	0.5	1.1	1.5
Average annual GDP growth rate, calendar adjusted	0.3	0.5	0.8	1.4
Calendar effect³	– 0.1	0.3	0.1	– 0.2
Annual average GDP growth rate⁴	0.2	0.7	0.9	1.2
Source: Federal Statistical Office (data as at 27 May 2026). Annual figures for 2026 to 2028 are Bundesbank forecasts. 1 Seasonally and calendar-adjusted index level in the fourth quarter of the previous year in relation to the calendar-adjusted quarterly average of the previous year. 2 Annual rate of change in the fourth quarter, seasonally and calendar adjusted. 3 As a percentage of GDP. 4 Discrepancies in the totals are due to rounding.

Overall, GDP growth will be weaker than expected in December. Compared with the December 2025 Forecast for Germany, the GDP rate is revised downwards slightly for 2026 and markedly for 2027. On an average of the current year, the supporting effects of unexpectedly strong GDP growth in the 2025/26 winter half-year and the strains caused by the war in the Middle East are nearly balanced. The latter will have a much greater annual average impact for 2027. Growth rates for business investment, private consumption and exports, in particular, were revised downwards. In addition, the rise in government investment will be somewhat less dynamic. On the other hand, the GDP rate for 2028 is adjusted somewhat upwards. This reflects the lagged economic recovery. Household spending on consumption and investment, in particular, will then rise somewhat more strongly than in the December forecast.

**Table 1.3a: Revisions since the December 2025 forecast**
Year-on-year percentage change
Item	2025	2026	2027	2028
GDP (real, calendar adjusted)
June 2026 forecast	0.3	0.5	0.8	1.4
December 2025 forecast	0.2	0.6	1.3	1.1
Difference (in percentage points)	0.1	– 0.1	– 0.5	0.3

Given weak potential growth, aggregate production capacity utilisation will gradually improve. Growth in the German economy’s potential output will be dampened by a large number of structural barriers to growth. These include demographic change and associated problems such as the shortage of skilled workers and rising non-wage costs as well as high energy costs, the burden of bureaucracy and regulation, and growing export competition, especially from China. Given that private investment has been sluggish for some time now, the capital stock is growing slowly. Against this backdrop and owing to the weaker forecast for investment, potential growth was reduced by 0.1 percentage point each for 2027 and 2028. It is now estimated to be 0.3 % in each of these two years, compared with 0.4 % in 2026. The expected GDP growth rates thus markedly exceed the weak potential growth, and the currently still significantly negative aggregate output gap will close over the forecast horizon. It will return to slightly positive territory in 2028.

Aggregate output and output gap

The government deficit and debt ratios will rise significantly. Additional defence expenditure and non-military investment are not the only reasons. Others include various types of tax relief and transfers (see chapter “Fiscal assumptions”). Spending by the social security funds will also rise sharply. Towards the end of the forecast horizon, however, these will be financed increasingly by higher contribution rates. Overall, the deficit ratio will rise from 2.8 % in 2025 to 4.9 % in 2028. This means that Germany will significantly exceed both the EU reference value of 3 % from 2026 and that, in 2028, the central government will exceed the borrowing limit under the national debt rule. The deficits of the Infrastructure and Climate Neutrality Fund will only partially lead to higher investment. In the forecast horizon, only 40 % of the special fund’s expenditure will be channelled into additional non-military investment.[8] The Maastricht debt ratio will grow from 63.5 % in 2025 to 69.7 % in 2028 (see chapter “Outlook for public finances”).

The labour market recovery is delayed. Employment is likely to decline slightly until the end of the year. However, the rise in unemployment is set to come to a halt somewhat earlier (see chapter “The short-term forecast for the labour market”). Only over the course of 2027 will demand for labour recover to such an extent that employment will also go back up. At the same time, the labour supply is declining so sharply that little room for job creation remains.[9] The strengthening economic recovery in 2027 and 2028 is thus being accompanied by rising hours worked and higher productivity. One particular factor is the increasing utilisation of that part of the workforce that had not been fully deployed in the past. Survey results show that some of the surveyed firms also expect productivity gains from the growing and more intensive use of artificial intelligence (AI). However, the extent to which these effects are confirmed remains to be seen. At the same time, firms’ aggregate assessment of the impact of AI on employment is neutral.[10] Unemployment will fall markedly until 2028. However, the rapid changes in professional and qualification-related requirements caused by structural change will make it difficult to reconcile skill mismatches. Unemployment is therefore not expected to return to its earlier low by the end of the forecast horizon, either. At the same time, the shortage of skilled workers will continue to increase.

Labour market

Growth in actual earnings will decline, but will remain strong. Actual earnings still rose strongly last year, boosted in large part by one-off payments such as severance payments. This is indicated by a new survey of firms conducted by the Bundesbank (see supplementary information “The role of one-off payments in the rise in actual earnings in Germany in 2025 and 2026”). According to these findings, firms are also expecting these payments to be significantly lower in 2026. Smaller bonus payments will also have a wage-reducing effect in 2026. In addition, the latest wage agreements were comparatively low and weaker than expected in the December 2025 forecast. In industry, workers are willing to forego higher wage increases in order to keep their jobs. By contrast, labour-intensive services are particularly affected by the sharp increase in the minimum wage at the beginning of the year. Overall, actual earnings will rise by 3.5 % in 2026. Growth is thus markedly weaker than in 2025 and also somewhat lower than expected in December. The weaker wage agreements from the current year will continue to dampen the increase in negotiated pay rates in 2027 (see chapter “The forecast for negotiated wages in this year and the next”). As one-off wage-raising effects related to severance payments will no longer play a role next year, the increase in actual earnings will decline to 3.1 % in 2027. A more favourable economic situation and renewed tightness in the labour market will strengthen employees’ bargaining position in 2028 and indicate that wage agreements will then be higher again. Actual earnings will then rise at a slightly stronger rate of 3.2 %. However, this does not entail any major second-round effects of the energy price increase via the wage channel (for a definition of such effects, see supplementary information “Definitions of direct, indirect and second-round effects of an increase in energy commodity prices”). Compensation per employee will rise even more substantially than actual earnings in 2028. This is due to the substantially higher social contribution rates, which also increase employers' non-wage costs even further (see chapter “Fiscal assumptions”).

Negotiated wages and compensation of employees

Domestic inflation will ease somewhat, but remain consistently elevated. Unit labour cost growth will fall palpably from a strong 4.6 % in the previous year to 2.3 % by 2027. This is because wage growth is slowing and labour productivity is rising at a markedly stronger pace. Firms have potential to expand their profit margins somewhat in 2026 and 2027. This is partly because higher energy costs will filter through to sales prices significantly and, in some cases, even to a heightened degree.[11] Economic sectors that benefit particularly from higher government expenditure are also likely to see more pronounced price increases. However, growth in unit labour costs will accelerate strongly to 2.6 % in 2028 due to a sharp rise in social contribution rates. This cost surge should impact prices and dampen profit margins only partially. Overall, domestic inflation – as measured by the GDP deflator – will drop to 2.7 % in both 2026 and 2027 (from 3.0 % in the previous year), before falling to 2.3 % in 2028. Nonetheless, it will remain consistently elevated.

GDP deflator: income side

After breaching the 2 % mark significantly in 2026 and 2027 due to the sharp spike in energy costs, the inflation rate will fall to just under 2 % in 2028. The annual rate of HICP inflation will rise significantly to 2.9 % this year, up from 2.3 % last year. This is mainly due to higher energy prices stemming from the war in the Middle East (see chapter “Inflation forecast for 2026”). While the direct effects of higher energy commodity prices for fuel and heating oil have already largely filtered through to consumer prices, the pass-through to gas price inflation is expected to be slower. Over the remainder of the forecast horizon, this will somewhat counteract the decline in energy prices that is generally expected given the commodity price trajectory. Higher energy prices will also impact the prices of food, non-energy industrial goods and services after a time lag. Upward pressure on food prices will mainly stem from rising costs for agricultural production and logistics, particularly transport and storage. This is in addition to higher costs for energy-dependent inputs such as fertilisers. Heightened energy costs will also impact on non-energy industrial goods via energy-intensive production processes, logistics costs and more expensive inputs. Services will be affected by steeper energy prices in the travel segment above all, as well as via transport, heating or intermediate input costs, but the overall impact will be less pronounced than on goods. These indirect effects of elevated energy prices will counteract the initial decline in pressure from unit labour costs. As a result, the core rate for this year and next (excluding the volatile energy and food components) will fall at a significantly slower pace than we expected in December (for a definition of direct versus indirect effects, see supplementary information “Definitions of direct, indirect and second-round effects of an increase in energy commodity prices”). It will decline slightly at most from 2.6 % this year to 2.5 % next year. As energy commodity prices are also receding, the headline rate will fall at a slightly accelerated pace in 2027 to 2.7 %, before plummeting to 1.9 % in 2028. The decline in energy prices that is already anticipated in Germany in response to commodity prices will be temporarily amplified by the transition from the national carbon pricing system (nETS) to the EU Emissions Trading System (EU ETS2).[12] The core rate will also recede somewhat in 2028 as the indirect effects of higher energy prices subside. However, it will remain elevated at 2.3 %, reflecting the economic recovery and a renewed surge in unit labour costs.

Contributions to headline HICP inflation by component

Overall, the inflation outlook for 2026 and 2027 has been revised up significantly compared with the December forecast. The main factors at play are the direct and indirect effects of the recent surge in energy prices. The latter have also led to an upward revision of the core rate for all three years of the forecast horizon.

**Table 1.3b: Revisions since the December 2025 forecast**
Year-on-year percentage change
Item	2025	2026	2027	2028
Harmonised Index of Consumer Prices
June 2026 forecast	2.3	2.9	2.7	1.9
December 2025 forecast	2.3	2.2	2.1	1.9
Difference (in percentage points)	0.0	0.7	0.6	0.0

The role of special payments in actual earnings growth in Germany in 2025 and 2026

Growth in actual earnings[1] in Germany was surprisingly strong in 2025, even compared with the development of negotiated wages. The gap between the annual rates of change in actual earnings and negotiated wages is referred to as wage drift.[2] This amounted to 2.1 percentage points last year. A positive wage drift indicates that, overall, enterprises paid more in wage components that are not set by collective agreements, and that non-negotiated wages rose more significantly than negotiated wages.

Rates of pay and wage drift

Actual earnings usually respond more quickly than negotiated wages to changes in macroeconomic conditions. Actual wages rose considerably faster than negotiated wages amid the sharp inflation surge of 2021-22. The latter did not reach their peak growth rate until 2024, by which point the pace of growth in actual wages had already declined. Negotiated wage growth then slowed considerably last year, as concerns about weak economic and labour market conditions took priority over the push for real wage increases. In this setting, it was surprising to note that actual earnings growth softened only moderately.

Special payments played a key role in the large gap between actual earnings growth and negotiated wage increases in 2025. Negotiated wages rose at a significantly slower pace than actual earnings in both the services and manufacturing sectors. This holds true in comparisons with the gross wages and salaries per employee recorded in the national accounts and the gross monthly earnings data according to the Federal Statistical Office’s earnings survey alike. Data from the earnings survey indicate that special payments played a key role in the difference in growth between negotiated wages and actual earnings.[3]

Wage growth in 2025

A new survey of firms conducted by the Bundesbank provides additional information on special payments.[4] The Federal Statistical Office’s earnings survey does not provide any information on which special payments pushed up wage growth so significantly in 2025. To gain a better understanding, two special questions on the role of special payments in 2025 and 2026 were posed in the Bundesbank Online Panel – Firms (BOP-F) survey in March 2026.[5]

According to the survey results, last year’s high special payments were mainly attributable to severance payments. Other reasons, such as performance-related bonuses or non-negotiated holiday pay, tended to be lower than usual in 2025, according to the survey. Severance payments are therefore likely to be one factor that explains the large wage drift in 2025. The macroeconomic importance of severance payments is heightened by the fact that they were primarily made by larger enterprises in 2025. This becomes evident after extrapolating the firms’ responses, weighted by the number of employees. However, these data may still underestimate the true impact of severance payments. This is because they do not factor in the actual amounts paid out, which were sizeable in some cases based on individual firms’ reports. This is important even if only a relatively small share of companies made large severance payments.

One-off payments at German firms by category (weighted by number of employees)

Severance payments were particularly common among firms in the manufacturing sector. Industry continued to experience a weak phase in 2025. Jobs were scaled back considerably, and according to the BOP-F survey, more severance payments were made. Press reports indicate that the scale of severance payments was particularly large in the automotive industry. The survey results point to a similar trend in some services sectors. The trade sector posted job cuts, with severance payments also reported by more firms than usual on balance. Similarly, the survey revealed an increase in severance payments in the information and communication technology sector. This is likely concentrated in the telecommunications segment, where workforce reductions are typically implemented via severance packages.

Severance payments paid out and planned by German firms by economic sector (weighted by number of employees)

Another striking trend is the reduced importance of bonus payments, which is likely to have curbed actual earnings growth somewhat in 2025. According to the survey, firms cut bonuses much more frequently than usual in 2025. This was particularly noticeable in the manufacturing sector. The analyses indicate that high competitive pressure and weak demand were factors at play here. In line with this, press reports suggest that the automotive industry, in particular, made huge cuts to bonus payments.[6] Firms in other economic sectors such as the chemical industry also reported a reduction in bonuses.[7] According to the BOP-F results, employee bonuses were markedly scaled back in other industries such as wholesale and retail trade, which is sensitive to cyclical developments. Overall, the services sectors also paid fewer bonuses than usual in 2025.

Based on firms’ expectations, severance payments are unlikely to support actual earnings growth as much this year as they did previously. At the time of the survey, enterprises were anticipating a marked countermovement in severance payments. According to the survey, other special payments are also not expected to increase compared with 2025.

The decline in special payments expected by the surveyed firms points to weaker growth in actual earnings in 2026. The results of the BOP-F analyses have been factored into the Forecast for Germany for 2026. Accordingly, wage drift in 2026 is expected to be considerably smaller than in 2025. Actual earnings growth over the forecast horizon will therefore be much more closely aligned with the increases stipulated in the collective agreements.

Actual earnings on a monthly basis comprise remuneration for all forms of paid employment. In the national accounts, they are recorded as gross wages and salaries per employee. Actual earnings cover both negotiated and non-negotiated wages and wage components.
The data on negotiated wages are derived from the Bundesbank’s negotiated pay rate statistics.
The gap that remains between the growth rates of actual earnings and negotiated wages even after special payments have been taken into account is likely due to factors such as inflation compensation bonuses that were exempt from tax and social contributions. In 2024, these payments were predominantly made by enterprises bound by collective agreements. As a result, the discontinuation of these bonuses had a much larger dampening effect on negotiated wages in 2025 than on non-negotiated wages and individually negotiated wage components above the collectively agreed rates, which are also included in actual earnings. In addition, some services industries with low collective bargaining coverage probably paid higher wages than those set by collective agreements in 2025 owing to better economic conditions in those sectors.
The Bundesbank Online Panel – Firms (BOP-F) is a survey of firms conducted since June 2020. Since July 2021, data have been collected on a quarterly basis using a net sample of around 3,000 enterprises per month; see Boddin et al. (2023). After cleaning the data, 2,132 firms responded to the special questions in the March 2026 survey. In the survey, special payments are defined as payments received in addition to regular base pay and the wage components set by collective agreements. Special payments include things such as performance-related and other bonuses as well as severance payments. They do not include regular payments such as basic remuneration or, for example, annual holiday or Christmas bonuses set by collective agreements.
The questions are: (1) “How high were the following non-negotiated special payments to employees at your enterprise in 2025 compared with the usual special payments from previous years?”, (2) “How high do you expect the following non-negotiated special payments to employees in your enterprise to be in 2026 compared with 2025?”. In a list of special payments, the response categories were “Higher than usual”, “The same as usual” and “Lower than usual”.
For example, bonuses based on company performance were reduced by 29 % at Mercedes-Benz, 46 % at Porsche and 70 % at Opel in 2025.
In 2025, chemicals group BASF reduced the profit-sharing bonus paid to its workforce by around 9 %.

Definitions of direct, indirect and second-round effects of an increase in energy commodity prices

Energy price shocks have a direct and indirect impact on the inflation rate and can also generate second-round effects. Direct effects describe the direct impact of an energy price shock on the energy components of the Harmonised Index of Consumer Prices (HICP). Indirect effects refer to the impact of an energy price shock along the production and distribution chain on all non-energy components of the HICP basket. Collectively, direct and indirect effects are referred to as first-round effects. Second-round effects describe the response of wages, inflation expectations and firms’ price setting in the wake of an energy price shock and their feedback effects on inflation.[1]

Possible transmission channels of an energy commodity price shock to consumer prices

Direct effects describe the impact of an energy price shock on consumer energy prices. Energy accounts for around 10 % of the HICP basket of goods in Germany and mainly comprises liquid fuels, transport fuels, gas and electricity.[2] If crude oil prices rise, this has a fairly direct impact on the petroleum products included in the HICP, i.e. liquid and transport fuel. By contrast, if wholesale natural gas or electricity prices rise, the pass-through to consumer prices in Germany takes place with a certain time lag. This is because consumers often enter into longer-term contracts and energy suppliers usually hedge against energy price fluctuations through long-term contracts in the futures market. The percentage increase in energy commodity prices does not have a one-to-one impact on consumer prices, as taxes and levies play a role here alongside procurement costs. These include, amongst other things, value added tax, energy tax, carbon taxes or network charges. There are also transport and distribution costs as well as profit margins.

Indirect effects describe the impact of an energy price shock along the production and distribution chain on all non-energy components of the HICP basket.[3] Energy is needed to produce almost all goods and services, for example in the form of heating or cooling, for transport, or as a commodity such as in the production of plastics or fertilisers. Following an energy price shock, production costs for consumer goods that are not directly assigned to the energy sector therefore also rise. Energy price fluctuations are passed through to individual consumer prices at different speeds and to varying degrees. This depends, amongst other things, on how many stages of production are involved, how energy-intensive the product in question is, how important other cost factors are (including government influences), the pressure from competition in the sub-markets and the economic situation. Indirect effects of an energy price shock are initially reflected in higher import and producer prices at the upstream stages of production. They gradually push up core inflation excluding energy.[4] If the direct and indirect first-round effects of an energy price shock were passed through to consumers after a certain period of time across all HICP components, the inflation rate should gradually normalise again, as long as no second-round effects materialise.

Second-round effects describe the response of wages, inflation expectations and firms’ price setting to an energy price shock and (expected) first-round effects as well as their feedback effects on inflation.[5] In response to an energy price shock and the associated (expected) first-round effects,[6] economic agents’ inflation expectations may increase, firms’ price setting may change or wage dynamics may increase.[7] In this context, the different channels can influence and reinforce each other.[8] This can lead to further upward pressure on prices in the form of second-round effects, concurrent with the first-round effects or with a lag. The lag on second-round effects via wages is fairly lengthy in Germany owing to the longer-term collective wage agreements.[9] Second-round effects via wages depend, amongst other things, on the extent of (expected) real wage losses and on the negotiating position of the wage bargaining partners.[10] If an inflationary shock is very strong, the risk of second-round effects via inflation expectations or a change in price-setting behaviour is particularly high, as firms could raise prices more frequently and/or more strongly than they usually would.[11] In addition, as a result of a large energy price shock, firms may attempt to push through higher profit margins. The shock would then act as an implicit coordination mechanism for price setting.[12] Lastly, second-round effects may manifest more rapidly via inflation expectations if experiences of high inflation rates are still at the forefront of economic agents’ minds.[13] Overall, according to this definition, second-round effects relate less to the temporal dimension of the pass-through of an energy price shock to consumer prices. Rather they describe the risk of a persistent rise in inflation resulting from a response of wage and price setting and inflation expectations to an energy price shock.

See, for example, European Central Bank (2004) and Lane (2026).
Alongside solid fuels and heat energy.
See, for example, European Central Bank (2014).
It should be noted that second-round effects are also reflected in the core rate excluding energy.
See also Battistini et al. (2022) and Baba and Lee (2022).
For second-round effects via inflation expectations, see, for example, Boeck and Zörner (2025).
For the impact of prices on wages following an oil price shock, see, for example, Enders and Enders (2017).
Wage-price spirals are distinct from second-round effects. See, for example, Alvarez et al. (2022).
In some euro area countries, second-round effects via wages occur more quickly, as wages are automatically indexed to inflation. In France, for example, minimum wages for low income households rise depending on factors such as the inflation rate. In Belgium and Luxembourg, all wages are automatically indexed to the inflation rate.
See, for example, Deutsche Bundesbank (2023b).
See, for example, Gautier et al. (2026).
See, for example, Weber et al. (2025).
See, for example, Malmendier und Nagel (2016).

2 Risk assessment

The risks accompanying the Forecast for Germany are strongly influenced by the war in the Middle East at present. Developments in other geopolitical conflicts or a potential resurgence of trade tensions are also unpredictable factors at play. Domestically, the main sources of uncertainty are the pace and scope of increased fiscal policy expenditure, as well as the structural reforms signalled by the Federal Government. Overall, inflation risks are very clearly skewed to the upside, while those for economic activity are tilted considerably to the downside.

In particular, future developments in the Middle East and the international commodity markets pose substantial risks. This forecast assumes that the conflict will be resolved swiftly, with crude oil and gas prices easing in the near term (see the chapter entitled “Assumptions regarding the international environment, exchange rates, commodity prices and interest rates”). It is possible that the situation will de-escalate more quickly than forecast. However, in the event of a prolonged war and a continued rise in commodity prices, the outlook for inflation and the economy would worsen considerably. One reason is that higher energy commodity prices would rapidly and directly push up petroleum product prices. In addition, the indirect effects are likely to be more pronounced or last longer than our forecast assumes. Inflation expectations could also rise more sharply. This in turn could push up inflation via second-round effects (for a definition of such effects, see the supplementary information entitled “Definitions of direct, indirect and second-round effects of an increase in energy commodity prices”). Higher inflation would be a drag on economic activity, especially due to softer private consumption. Investment and exports would also suffer as a result of heightened uncertainty and weaker global economic activity. One such severe risk scenario for the German economy can be found in the supplementary information entitled “A severe risk scenario that covers the potential impact of the war in the Middle East on the German economy”.

The exact scale of the fiscal stimulus and its impact are subject to some uncertainty. First, the Federal Government has announced extensive fiscal policy adjustments, although details have not yet been announced. Major income tax and social security reform is on the agenda. Moreover, significant action regarding the central government budget will be required to comply with the debt brake. The underlying fiscal forecast also indicates a similar need for action in 2028. Second, additional defence and investment spending could prove lower or higher than envisaged in the forecast. Based on past evidence, outflows of funds have tended to be slower, as actual spending has always undershot the target levels to a greater degree than anticipated in the forecast. However, lower regulatory and administrative barriers could lead to even faster outflows than assumed here. Given the ample funds available, this could push up price pressures materially. The main sectors affected would be the defence industry and civil engineering, as they may be subject to greater capacity bottlenecks. Accordingly, inflation pressures would probably hit investment particularly hard, but not necessarily consumer prices. In addition, further measures to counter the impact of high energy prices could be considered, depending on how the conflict in the Middle East evolves. Depending on what form they take, these measures could also have a direct bearing on consumer prices.

Successful structural reforms could support the recovery. The main driver behind the sharp rise in labour costs set out in the forecast is demographic change. This is because, as well as bolstering wages, it exerts high pressure on non-wage labour costs in particular. If, contrary to the assumptions in the forecast, the statutory health insurance measures failed to stabilise contributions on a large scale, this pressure could be even stronger than expected. However, if the Federal Government also reined in the increase in spending on pensions and long-term care as announced, this would generally have a favourable impact on non-wage labour costs and the competitiveness of the German economy. Moreover, the supply side of the German economy could be additionally reinforced if growth-enhancing reforms were implemented in the areas of taxes, the labour market and bureaucracy. In this case, GDP growth could be stronger than assumed in the forecast.

A severe risk scenario that covers the potential impact of the war in the Middle East on the German economy

The Iran war has caused energy commodity prices to rise significantly worldwide. This was mainly due to the blockade of the Strait of Hormuz. It is one of the world’s most important oil and LNG transport routes.[1] Alternative options are limited. A prolonged closure of the Strait of Hormuz and a major destruction of energy infrastructure in the region caused by the war would therefore likely lead to massive disruptions.

The scenario assumes that energy commodity prices will rise sharply beyond the forecast assumptions and remain at significantly elevated levels until 2028. This could occur, in particular, if shipping traffic in the Persian Gulf were impaired for a prolonged period of time, or if destruction of energy infrastructure in the region were to continue. It is assumed that oil and gas prices, in particular, will increase significantly again compared with the baseline scenario of the forecast and will remain at markedly elevated levels throughout the forecast horizon. At its peak, the oil price, at US$166 per barrel, would be well above the highs of the 2021/22 energy crisis, while European gas prices would also rise significantly more sharply, but at around €112 per megawatt hour, would fall short of these highs. Natural gas is an important input in fertiliser production, which is also located in some countries of the Middle East. Food commodity prices would therefore also go up markedly, albeit not as sharply as energy commodity prices. It is also assumed that this strong supply shock will be followed by heightened global uncertainty. The assumptions about the rise in commodity prices and uncertainty in this severe risk scenario and their impact on the international environment are based on ECB staff analyses for the euro area.[2]

Scenario comparison of energy commodity prices

Higher energy costs and greater uncertainty are a drag on the global economy. Higher oil and gas prices are driving up inflation worldwide, eroding households’ real incomes and firms’ scope for spending, and thereby dampening global demand. In addition, the higher uncertainty is weighing on consumer and investment spending, meaning that German exporters' sales markets fall well below their reference level overall.

The model calculations indicate a considerable downside risk to economic activity in Germany. The implications of the scenario for the German economy are estimated using the Bundesbank’s macroeconometric model (BbkM-DE).[3] The effects triggered by the heightened uncertainty in Germany are quantified using a satellite model and likewise integrated into the calculations using BbkM-DE.[4] Cumulatively, the losses in real GDP growth by the end of 2028 are around 2 percentage points compared with the baseline scenario in the forecast. While they are comparatively mild this year, at around three-tenths of a percentage point, the decline increases to 1.2 percentage point for 2027 compared with the baseline scenario. This would mean that the German economy would barely grow this year and would even contract again next year. Even in 2028, the decline in growth still stands at half a percentage point. Overall, the dampening effects are broadly distributed across the expenditure components of GDP. The decline in demand in the foreign sales markets reduces German exports. Higher energy costs and heightened uncertainty result primarily in a decline in domestic enterprises’ investment activity. Real losses in purchasing power due to the significant rise in consumer prices force households to rein in their consumption. This transmission channel is the dominant factor in overall GDP losses. This is partly because the rise in commodity prices and its impact on the inflation rate are quite persistent.

Potential impacts on economic growth and the inflation rate in Germany in the severe risk scenario

Higher commodity prices will drive up the inflation rate in Germany strongly and broadly across its components. The dominant drivers here are the significantly higher oil and gas prices and the resulting direct effects on the HICP energy component. However, higher food prices also have a marked impact on inflation. In addition, the core inflation rate excluding energy and food will continue to feel the impetus, albeit somewhat later on. Overall, the inflation rate this year is just under 1 percentage point above the baseline scenario in the forecast. The effect will increase to around 2½ percentage points in 2027 and recede only slightly to 2 percentage points in 2028. This would mean that inflation would rise to a peak of over 5 % and even in 2028 would still be nearly 4 %.

The reasons for the sustained inflation effects in the simulation calculations are manifold. First, the commodity price increases assumed in the scenario are very persistent. Higher gas prices in Germany also feed through to consumers with a time lag. As a result, energy and food components of the HICP already exert a longer-lasting impact on inflation. This will be amplified by lagged and gradually built-up effects via the core rate. In addition to these indirect effects, second-round effects also contribute to this (for a definition of such effects, see supplementary information “Definitions of direct, indirect and second-round effects of an increase in energy commodity prices”).

In the scenario considered here, commodity price increases are assumed to be passed through to consumer prices on a scale above the usual historical patterns. To be fair, the starting point of the current energy crisis differs in some respects from the beginnings of the last period of high inflation.[5] The general macroeconomic environment is also different from 2022. At that time, the surge in energy prices coincided with a period of strong post-pandemic pent-up consumer demand, tight supply chains and, initially, still very accommodative monetary policy conditions. In the current environment, demand is weaker, financing conditions are neutral, and inflation rates before the outbreak of the war in Iran were considerably closer to the price stability target than in the 2021/22 winter half-year. This means that the conditions for strong second-round effects via wages are less evident today than back then. And the model simulations also contain only those second-round effects that are usually caused by endogenous model responses via the wage channel. However, memories of high inflation rates in 2022/23 could lead to stronger second-round effects via inflation expectations and by firms adjusting their prices more rapidly.[6] Such non-linear effects are taken into account in the model calculations for Germany. They contribute to the inflation effects reported here.[7]

Many of the assumptions made to calculate the severe risk scenario are themselves highly uncertain. The duration and intensity of potential disruptions to energy transport routes and the necessary production and processing infrastructure are particularly uncertain. In addition, the extent to which other (oil and gas) producing countries can provide additional quantities and the extent to which reserves can be buffered will also play a role. Finally, the macroeconomic transmission channels are also uncertain and depend on the model used and the assumptions made with regard to the non-linear effects.

In non-crisis periods, around one-fifth of the global supply of oil and liquefied natural gas is transported through it; see Deutsche Bundesbank (2026).
See the severe scenario in Box XY in European Central Bank (2026). The severe risk scenario assumes that monetary and fiscal policy in the euro area remains unchanged from the baseline scenario. With regard to fiscal policy in Germany, this implies that no additional fiscal measures that go beyond the scope of the automatic stabilisers endogenous to the model are included.
The BbkM-DE is a semi-structural macroeconometric model used, amongst other things, to prepare the Bundesbank’s macroeconomic forecast; see Haertel et al. (2022).
As in previous scenario analyses, a structural vector autoregression model is used for this purpose. For more on the macroeconomic impact of heightened uncertainty and possible implications for the German economy, see also Deutsche Bundesbank (2025a, 2025d).
See Deutsche Bundesbank (2026). Energy markets were already tight even prior to the outbreak of Russia’s war of aggression against Ukraine in February 2022. This was not only because of Russia cutting back gas deliveries to Europe but also the strong global economic recovery following the pandemic. By contrast, at the beginning of 2026, global oil and gas markets were well supplied. The current crisis is likewise affecting the oil market, whereas it was the gas and electricity markets that were particularly affected in 2021/22. At that time, the initial focus of the crisis was on Europe, as the discontinuation of Russian gas supplies required extensive and costly adjustment processes.
Coibion et al. (2026) show that households’ inflation expectations are more sensitive in the light of the recent period of high inflation and the ongoing geopolitical tension. In such an environment with higher expected inflation rates, it could be easier for firms to enforce higher prices; see Acharya et al. (2025). Gautier et al. (2026) analyse microdata in order to document a significant increase in the speed of price adjustment in the euro area during the period of high inflation.
The calibration of an increased pass-through of commodity price shocks to the HICP components is based on a model-implied ex post analysis of the period of high inflation in Germany which borrows from Angelini et al. (2025). It examines the extent to which the inflation rates at that time could have been anticipated with the actual assumption paths, especially for commodity prices, and the use of today’s models. For the HICP energy component and the core rate, the inflation rates calculated in this way ex post are below the inflation rates observed during each period of high inflation. An increased pass-through of commodity price shocks to consumer prices was thus incorporated into the scenario calculations for both HICP components. The additional inflation effects were derived from the results of the analysis. In their scaling, they also take into account the differences between the two crisis episodes in the strength of energy price shocks and the relative strength of oil and gas price shocks. To capture the more frequent price adjustments, the error correction coefficient in the behavioural equation of the core rate was increased in the simulation calculations to a degree that can reflect the increased frequency of price adjustments during the period of high inflation.

3 More detailed information on the Forecast for Germany

3.1 Assumptions regarding the international environment, exchange rates, commodity prices and interest rates

The Forecast for Germany is based on joint assumptions by the Eurosystem about the global economy, exchange rates, commodity prices and interest rates. These assumptions are based on information that was available as at 21 May 2026.

The war in the Middle East and the blockade in the Strait of Hormuz have pushed up energy commodity prices materially. The blockade of the world’s most important route for transporting fossil fuels and the war-related destruction of energy infrastructure in the region’s countries have sent crude oil prices climbing, at times, close to the highs seen during the 2022 energy crisis. Gas prices have also risen significantly, yet have remained well below the levels reached in 2022. The same holds for European electricity prices.[13] The forecast assumptions derived from forward prices suggest that crude oil and gas prices will decline rapidly and continue to fall sharply until the end of the forecast horizon. However, both exceed the levels of the December forecast by more than 50 % for this year, more than 30 % for 2027 and by a significant amount for 2028 as well. In terms of electricity prices, the difference is smaller and spans a shorter timeframe. Producer prices for food are also above the levels of the previous forecast, which is probably partly due to the higher fertiliser prices.

High energy prices, uncertainty about global energy supply and US trade policy are taking their toll on the global economy.[14] Growth in the global economy remained solid overall in the first quarter of 2026, despite the significant rise in energy prices. In the winter half-year, it therefore trended largely in line with the assumptions of the December forecast. This was partly due to buoyant investment activity related to the AI boom, which benefited the US and some Asian economies in particular. However, reduced purchasing power owing to the sharp rise in energy prices and uncertainty about energy supply are expected to dent global demand. In addition, a more restrictive US trade policy is continuing to weigh on economic activity.[15] At 3.0 % this year and 3.2 % in 2027, global GDP growth will continue to lag behind the previous forecast overall. It will then reach 3.3 % in 2028, which is broadly in line with the December forecast.

Compared with the assumptions in the December forecast, economic growth in the other euro area countries will be somewhat weaker initially, but slightly stronger in 2028. The economic growth figures in the other euro area countries used in the forecast are derived from the forecasts of the national central banks, which were incorporated into the projection for the euro area published by the ECB on 11 June 2026. This year, economic growth in the euro area excluding Germany will also remain below the December forecast, at a rate of 0.9.∙%. Momentum will pick up over the next two years. The growth rate for 2027 will be at 1.4.∙%, consistent with the December forecast, while for 2028 it will be somewhat higher at 1.6.%.

Global trade is showing resilience; German sales markets are expanding on a smaller scale. In the winter half-year of 2025/26, global trade was significantly more dynamic than expected in the December forecast. Imports by the United States and some East Asian countries, in particular, rose considerably due to the AI boom. Growth in global imports is set for a moderate slowdown in the short term. However, given the increased demand for high-tech goods due to the AI boom, global trade is expected to grow at a stronger pace than the global economy. After averaging 4.2 % this year, growth is projected to reach 3.6 % in 2027 and 3.5 % in 2028. As demand for imports from trading partners within the euro area is weak relative to global trade, growth in German exporters’ sales markets will continue to lag behind global trade.

**Table 1.4: Major assumptions of the projection**
	June forecast				Revisions since December forecast¹
Item	2025	2026	2027	2028	2025	2026	2027	2028
Euro exchange rates
US dollar/euro	1.13	1.17	1.17	1.17	0.0	0.9	0.9	0.9
Effective²	128.3	130.0	129.8	129.8	0.5	0.2	0.0	0.0
Interest rates
Three-month Euribor	2.2	2.4	2.8	2.7	0.0	0.4	0.7	0.4
Yield on government bonds outstanding³	2.6	3.1	3.3	3.4	0.0	0.3	0.3	0.2
Prices
Crude oil⁴	69.1	96.9	82.2	77.1	– 0.1	55.0	31.3	20.5
Natural gas⁵	36.2	45.6	37.5	27.9	– 0.8	54.1	36.4	11.6
Electricity^5,6	83.6	89.3	78.2	68.1	– 0.4	19.1	6.1	– 4.6
Other commodities^7,8	5.8	3.0	0.8	– 1.9	0.1	2.9	0.3	– 1.6
Food^7,8	4.1	– 0.4	2.9	– 0.2	– 0.5	1.7	0.3	– 2.2
German exporters' sales markets^8,10	4.0	2.5	2.9	3.2	0.7	0.4	– 0.1	0.2
1 Revisions for exchange rates and crude oil, natural gas and electricity prices as a percentage; interest rates, other commodity prices, food and the sales markets of German exporters in percentage points. 2 Compared with 40 currencies of major trading partners of the euro area (EER-40 group of currencies); Q1 1999 = 100. 3 Yield on German government bonds outstanding with a residual maturity of over nine and up to ten years. 4 US dollars per barrel of Brent crude oil. 5 Euro per MWh. 6 Wholesale prices in the euro area based on data from the European Central Bank. 7 In US dollars. 8 Year-on-year percentage change. 9 Producer prices for food in the euro area based on data from the European Commission. In euro. 10 Calendar adjusted.

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3.2 Fiscal assumptions

Defence expenditure will rise steeply. By 2028, its share in GDP will increase by around 1 percentage point compared with 2025, to 2½ %.[16] The broader NATO ratio will then be around 3¼ %. Military investment will rise particularly sharply.

Non-military government investment will also increase markedly. By 2028, its share of GDP will rise by ½ percentage point compared with 2025. This is driven by the Infrastructure and Climate Neutrality Fund. However, borrowing by the Infrastructure and Climate Neutrality Fund will increase significantly more strongly during this period, and the funds will be used partly to ease the budget burden on central, state and local government. For example, local governments will receive extensive funds, but these funds will be used, in particular, to consolidate their budgets, which have large deficits. The local government investment ratio will remain broadly constant.[17]

Various measures[18] are aimed primarily at relieving firms and households of high energy costs. These include, in particular, the subsidisation of grid charges for electricity consumption from 2026 onwards and the reduced electricity tax for the manufacturing sector and agriculture. In addition, in response to the recent surge in fuel prices, energy taxes on petrol and diesel were cut temporarily in May and June. From 2027 onwards, electricity costs in energy-intensive industries (the industrial electricity price) will also be subsidised retroactively for the previous year.

Further changes in tax law and expenditure-side measures will increase the general government deficit. These include the temporarily more generous depreciation options for enterprises and the reduction in corporate tax rates in 2028. Besides this, the cut to VAT on food and beverage service activities to the reduced rate from 2026 onwards will also play a major role. By contrast, the gradual increase in tobacco tax in 2026 will generate additional revenue, on a small scale at first but rising somewhat over time. From this year onwards, central and state governments’ personnel expenditure will increase markedly as a result of them implementing the requirements of the Federal Constitutional Court for the appropriate support of civil servants. Expanded mothers’ pensions will take effect from 2027 onwards. The national accounts already record expenditure at the time it arises; actual disbursements are expected to take place only as of 2028.

Key deficit-affecting measures and social security contribution rates

Social security expenditure will rise considerably, and the overall contribution rate will increase by almost 2 percentage points to 44¼ % by 2028. Expenditure will grow significantly more strongly than wages subject to compulsory contributions. This is mainly because of demographic developments and benefit increases. It is therefore assumed that the contribution rates to the statutory pension insurance scheme and the long-term care insurance scheme will rise sharply. By contrast, the contribution rate to the health insurance scheme will remain stable from 2026 onwards because it is assumed that the announced health reform will achieve this objective.[19] The Forecast shows slower growth (than in the absence of a reform) in health expenditure and faster growth in contribution receipts due to broader assessment bases.[20] In addition, larger central government loans prevent contribution rates from rising more sharply. In particular, central government bridges cyclical funding gaps at the Federal Employment Agency.

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3.3 Outlook for public finances

The deficit ratio will rise from 2.8 % in 2025, to 4.4 % and then 4.8 % in 2027 due to the expenditure ratio increasing significantly and the revenue ratio remaining broadly stable. Expenditure will rise sharply in structural terms.[21] This applies especially to defence expenditure, but also to non-military investment. In addition, there will be strong expenditure dynamics in the health, long-term care and pension insurance schemes. Interest expenditure will continue to grow – mainly as a result of the rising average interest rate on government debt, but also because of the mounting debt level. On the revenue side, the tax ratio will fall slightly due to various tax cuts. By contrast, the social security contributions ratio will rise because of increasing contribution rates to the long-term care and health insurance schemes.

In 2028, the deficit ratio will stabilise at around 4.9 %. In 2028, the revenue and expenditure ratios will grow roughly in tandem. The economic recovery will noticeably ease the burden on public finances. However, structural expenditure dynamics will remain strong. Defence expenditure, social spending, expenditure on infrastructure and interest rates will continue to rise significantly. At the same time, the structural revenue ratio will rise markedly. This is because the increase in contribution rates will be much more substantial than the tax cuts. The pension insurance scheme contribution rate, in particular, will rise sharply. Up to 2027, the pension insurance scheme will record large deficits and run down its reserves. These will be largely used up at the beginning of 2028, and the contribution rate will have to be raised sharply, from 18.6 % to 19.8 %.

Development in the structural revenue and expenditure ratios

Of the different levels of government, central government (including its off-budget entities) will be the main driver of the sharply increasing deficits. This is mainly the result of rising net borrowing for defence expenditure. The debt brake will no longer limit this increase. In addition, the Infrastructure and Climate Neutrality Fund will increase its deficit, partly to finance transfers to state and local governments. Despite the expanded scope for borrowing, this Forecast foresees central government breaching the standard debt brake ceiling in the core budget by just under 1 % of GDP in 2028. The Federal Government reports a similarly large need for action in 2028 for the central government budget. By contrast, local governments will reduce their deficits, partly because this Forecast sees them using funds from the Infrastructure and Climate Neutrality Fund for this purpose.[22] Turning to the social security funds, the pension insurance scheme will build up large deficits up to 2027. In 2028, its reserves will then have been used up, and it will close its deficit with a sharp rise in the contribution rate.

The developments in the Forecast show a potential conflict with the EU rules (see Chart 1.17). The projected deficit ratio is well above the EU reference value of 3 %. Even when the escape clause for defence spending under the EU rules[23] is taken into account, the deficit ratio is still above 3 %. This is also evident from the Federal Government’s projections. By contrast, the European Commission recently projected lower deficits, and it expects Germany to comply with the 3 % limit if the escape clause is taken into account. It therefore does not currently recommend an excessive deficit procedure for Germany.[24] The EU rules also set targets for net government expenditure growth. According to the Bundesbank’s Forecast, these requirements will be met by 2027, but not in 2028.[25] As a general rule, whether the expenditure requirement has been breached is only assessed retrospectively based on the results.

Fiscal forecast and EU rules

The Maastricht debt ratio will rise from 63.5 % at the end of 2025 to 69.6 % at the end of 2028 because of high government deficits. This is mainly due to the deficits of central and local governments (particularly central government). The deficits in the social security funds do not increase government debt if they are financed from reserves. In 2026 and 2027, however, the social security funds will partially finance their deficits with central government loans. This will raise the Maastricht debt ratio by almost ½ percentage point by the end of the forecast period, as central government has to borrow funds for this purpose. This does not include the share of EU debt for which Germany is ultimately liable, especially in connection with NGEU.[26] This will amount to 2½ % of GDP at the end of 2028.

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3.4 Details of the short-term GDP forecast

Economic output is likely to grow only slightly over the summer half-year.[27] The impact of the war in Iran will considerably stall the economic recovery which would otherwise be on the cards thanks mainly to the strong fiscal stimulus in the second and third quarters. Gross domestic product in the second quarter is thus expected to stagnate. Households’ real disposable income is likely to decrease, and the significant decline in the GfK consumer climate index in the second quarter also points to a setback in private consumption. This will probably additionally be accompanied by a decrease in service providers’ activity. The key indicator of this is S&P Global’s corresponding Purchasing Managers’ Index, which fell well below the expansion threshold in April and May, as well as the gloomier ifo assessment of service providers’ situation. Following a weak start to the year due to weather conditions, the construction sector is set to normalise and thus see increased output. However, this increase is likely to be subdued, because losses in purchasing power alongside higher financing costs, increased construction prices and renewed supply chain disruptions are now weighing on housing construction in particular. At the same time, the state of heightened uncertainty is dampening business investment. That being said, industry has remained fairly strong recently, in line with comparatively robust export activity: incoming orders from abroad rose significantly again in March, and the ifo assessment of the manufacturing sector's situation also improved up until May. Short-term frontloading effects and sectoral competitiveness gains are also likely to have played a role here.[28] However, the significant deterioration in ifo export and business expectations of late suggests that industrial enterprises are expecting burdens due to the war in the Middle East, after a certain lag. Overall, industry and exports will probably continue to bolster GDP in the second quarter but go on to dampen it in the third quarter. At the same time, the largest direct burdens will already be starting to ease in the third quarter: it is assumed that energy commodity prices will decline, meaning that households will again have slightly increased disposable income in real terms. Furthermore, uncertainty effects will abate. Overall, economic output will then rise again slightly in the third quarter (by 0.1 % on the quarter).

Business situation and expectations

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3.5 Forecasts of expenditure components of GDP

Exports will be curbed temporarily and will then see increasingly strong growth. Exports are unlikely to maintain their high momentum from the start of the year. The strong pace of expansion at that point in time was probably also supported by short-term bolstering effects in connection with the war in Iran. For example, monthly foreign trade statistics suggest that, in anticipation of potential supply bottlenecks and rising prices, demand for domestic intermediate goods increased. In addition, the greater dependence of Asian markets on raw materials from the Middle East is likely to have partly improved the competitive position of the German export industry. This development will probably continue into the second quarter – albeit to a significantly weaker extent. The business situation (as surveyed by the ifo Institute) of industrial enterprises with a key role in export business even improved somewhat further up to May, and the export expectations of these enterprises initially declined only marginally after the outbreak of the Iran war. Accordingly, exports are likely to increase slightly. The negative implications of the war are then expected to predominate in the third quarter, as indicated by the significant fall in export expectations from May. Strong increases in commodity prices, in particular, are likely to have a marked dampening effect on international trade and Germany’s export business. From the fourth quarter onwards, exports will probably return to a growth path. Foreign demand will then be more dynamic again and provide stronger growth impulses (see the section entitled “Assumptions regarding the international environment, exchange rates, commodity prices and interest rates”). Exports will go on to benefit somewhat more strongly from this in the coming year. Although their pace of expansion will thus see a gradual increase, it will remain subdued, lagging behind that of the sales markets. Against the backdrop of increasingly widespread use of AI, the latter will also be bolstered by high demand for microchips. However, this will is only likely to benefit German export industry to a limited extent. Furthermore, structural barriers to growth in the German economy will persist, weighing on the competitive position in international trade.[29] This will not change fundamentally over the forecast horizon. In particular, the sharp rise in non-wage labour costs is likely to place a marked additional strain on domestic firms’ price competitiveness. The measures adopted by the Bundestag to strengthen domestic production in Germany, such as, in particular, lowering corporation tax and improving depreciation options, are likely to boost competitiveness. However, other structural burdens, particularly those stemming from demographic change and increasing competition from China, will remain unaffected. These burdens prevent a fundamental improvement in competitiveness. Against this backdrop, the market share losses experienced by the German export industry will continue to increase over the forecast horizon.

Exports and sales markets

The war in Iran is an additional burden on corporate investment, which is only slowly gathering momentum. The already unfavourable conditions for commercial investment have deteriorated further recently. In tandem with strongly underutilised industrial capacity, surging energy and commodity costs as well as high geopolitical uncertainty are likely to reinforce investment restraint. Accordingly, the majority of the capital goods producers surveyed by the ifo Institute assess their current business situation as poor. Their business expectations also suggest that investment restraint is likely to persist for the time being; having already been predominantly pessimistic for some time, they have recently declined considerably further. Business investment is therefore anticipated to decline markedly in the summer half-year and remain sluggish thereafter. It is only set to pick up over the course of next year. For one thing, the negative effects of the recently observed uncertainty shock will have subsided by then. For another, the degree of capacity utilisation in the manufacturing sector will increase in the wake of stronger export dynamics and boost investment propensity. However, business investment will not provide any noticeable growth stimulus until 2028. The rate of expansion will nonetheless remain subdued overall, as interest rates on loans to enterprises will rise gradually and the competitive environment for German industry will remain difficult.

Business investment

In the wake of the short-term burdens caused by higher energy prices, households’ consumption is expanding again and supporting economic growth. Since March 2026, the economic fallout from the Iran war has been weighing on households. Higher energy prices are resulting in marked losses in purchasing power and reducing real disposable income. Both are likely to decline slightly further in the second quarter, too. Private consumption is set to fall even more sharply. Although some households partially absorb income losses through consumption smoothing, Bundesbank survey results point to increased precautionary motives in view of the geopolitical uncertainty and the gloomy labour market situation. The saving ratio is thus likely to rise slightly overall (see supplementary information “Basing the Forecast for Germany on the gross rather than the net saving ratio”). The GfK sentiment indicators substantiate this picture of a temporary period of weakness. Consumer sentiment plummeted in March and April, recovering only slightly in May. However, as crude oil prices are assumed to not generate any further cost surges, private consumption is likely to pick up again somewhat in the third quarter and then shift to a more pronounced recovery path from next year onwards. Easing price pressures and the associated rise in real disposable income will boost momentum. In addition, uncertainty and precautionary motives stemming from the labour market situation will ease gradually, causing the saving ratio to fall markedly as from the middle of next year. However, in gross terms, the latter will remain elevated up to end of the forecast horizon as persistent and structural saving motives prevail (see supplementary information “Basing the Forecast for Germany on the gross rather than the net saving ratio”). Overall, private consumption will increase again somewhat more significantly in 2027 and 2028 and will become more important for GDP expansion.

Private consumption and saving ratio

Basing the Forecast for Germany on the gross rather than the net saving ratio

In recent years, the net and gross saving ratio in Germany have diverged substantially. The saving ratio is an important metric for the Forecast for Germany, as it significantly influences private consumption and thus GDP. In the national accounts, it is calculated as the ratio of households’ saving (disposable income minus consumption) to their disposable income. Here, the “gross concept” of calculating the saving ratio initially applies. So far, however, the Bundesbank’s macroeconomic forecasts have mainly been based on the net saving ratio. This is calculated in the same way, but using net disposable income in each case, i.e. disposable income adjusted for depreciation, amortisation and write-downs (hereinafter: depreciation) on households’ capital stock. This difference is relevant for economic assessment at the current end: the net saving ratio has returned roughly to its pre-pandemic level and therefore no longer points to increased saving behaviour.[1] By contrast, the gross saving ratio is currently still at an elevated level by historical standards. It thus indicates a persistently high level of saving and a reluctance among households to consume. This could result in additional consumption potential over the forecast horizon if the causes behind the increased gross saving ratio subside.

Saving rates based on the gross and net concepts

The main difference between the two concepts lies in the treatment of depreciation. In the national accounts, depreciation records the imputed loss in value of the capital stock – primarily residential real estate in the case of households.[2] It is calculated on the basis of investment prices for residential real estate at replacement cost as well as assumptions about useful life.[3] It thus reflects estimated costs that would be necessary to maintain the capital stock. Construction costs play an important role in this context. However, this depreciation is an arithmetical variable that does not represent actual cash flows. It can thus differ significantly from the loss in value perceived by households and the specific reserves earmarked for this purpose, and therefore does not form a direct part of consumption decisions. In the national accounts, depreciation has no impact on gross savings, but it reduces net savings because the loss in the value of real estate is recorded as an implicit saving need.

A sharp rise in construction costs has increased depreciation and thus widened the divergence between the gross and net saving ratio. Higher construction costs raise the replacement cost of real estate, thus increasing the reported loss in capital value in the national accounts. While construction costs in Germany had previously been relatively moderate for an extended period of time, they surged between 2021 and 2023 as a result of higher material costs due to supply chain disruptions and higher energy prices (see Chart 1.23). This directly increased depreciation and thus depressed the net saving ratio. By contrast, the gross saving ratio remained unaffected. The sharp rise in construction costs thus played a key role in the observed divergence in the gross and net saving ratio.

Construction prices of residential buildings and depreciation

Households are unlikely to have taken the increase in construction costs into account in their consumption decisions to the extent suggested by depreciation. Owners of owner-occupied or leased real estate could increasingly form reserves for maintenance and value preservation costs given the sharp rise in construction costs. However, an impact on saving and consumption on the scale suggested by the depreciation figures recorded in the national accounts seems unlikely. This is because other motives for saving could also be playing a role in the still-elevated gross saving ratio at present.

Using the Bundesbank Online Panel for Households (BOP-HH),[4] we investigated to what extent the currently elevated gross saving ratio is due to the formation of reserves by real estate owners or to other factors. In the March 2026 wave of the survey, around 4,000 people were asked about both their current propensity to consume and possible influencing factors (see Chart 1.24). Real estate owners (around two-thirds of respondents) were offered the option of the formation of reserves as an additional factor.

According to the survey, the formation of reserves for residential real estate is the third strongest factor influencing the current propensity to consume and is having a significant dampening effect on private consumption.[5] The only sources of even stronger negative effects are losses in purchasing power, particularly in view of the sharp rise in oil prices in March,[6] and saving for major purchases. This means that reserves are an important factor in explaining saving behaviour and are likely to contribute somewhat to the increased gross saving ratio.[7] However, the survey results also show that other factors, which are also related to an increased gross saving ratio, are dampening consumption. These include precautionary economic motives connected with heightened uncertainty and current labour market conditions, as well as incentives to save created by higher interest rates. Another contributing factor is long-term consumption-smoothing behaviour relating to increased private retirement provision.[8] This shows that, from the perspective of households,[9] the effects captured in the national accounts via depreciation are, in principle, a relevant factor in an increased saving ratio, but are not the only one. In the net saving ratio, the contribution of these other factors is masked by the sharp increase in depreciation. The Forecast for Germany will therefore consider both saving ratio concepts from now on, with greater importance being placed on the gross saving ratio in the current situation.

Current propensity to consume and influencing factors

The survey results provide an indication of the path of the saving ratio over the forecast horizon and thus contribute to the process of forecasting private consumption (see section “Forecasts of expenditure components of GDP"). The saving ratio is likely to increase slightly at first. Respondents’ propensity to consume was already significantly dampened in March for the reasons outlined above.[10] As a result, consumers are more likely to save for precautionary reasons overall than to maintain their consumption expenditure as far as possible despite the considerable losses in purchasing power, i.e. to “smooth” their consumption expenditure. Overall, these factors are not expected to be fully reflected in the saving ratio until the second quarter of 2026. Over the remainder of the forecast horizon, the saving ratio is likely to gradually fall. This is because precautionary motives for saving due to elevated unemployment and geopolitical uncertainty will then lessen. However, some factors are likely to be more persistent or structural in nature and could also keep the saving ratio above its pre-pandemic level in the longer term. These include a greater need for real estate owners to set aside reserves, partly because of a further rise in construction costs, and, in particular, due to changes in private pension provision.

Accordingly, the December 2025 Forecast for Germany assumed a broadly constant saving ratio over the forecast horizon; see Deutsche Bundesbank (2025e).
In 2022, around 42 % of Germany’s population lived in owner-occupied houses and thus owned real estate; see Federal Statistical Office (2022). This figure has remained constant over the past few years. The share of additional real estate owners who do not live in the homes they own but exclusively lease them out is unknown. In the survey results analysed below, around two-thirds of respondents reported owning real estate in total.
See Federal Statistical Office (2025) – Definition of “depreciation” and Gühler and Schmalwasser (2020). Replacement cost is the amount that would have been paid if the fixed assets had been purchased at the time of reporting. The fixed assets are valued at contemporary prices for the reporting period; see Gühler and Schmalwasser (2020).
The BOP-HH is a monthly online survey of households in Germany comprising persons aged 16 and over, conducted on behalf of the Bundesbank by the public opinion research institute forsa; see Deutsche Bundesbank (2019).
Here and below, the results are weighted according to the composition of the population based on the following key characteristics: age, gender, region and education. The weighting of the online population aged 16 and over is based on current data from the forsa.omnitel multi-topic survey, which is representative of the population, but restricted to individuals aged 16 and over who are regularly online.
According to the survey results from March 2026 petrol prices were expected to see an exceptionally sharp rise.
The type of real estate ownership (owner-occupied or leased) does not play a particular role here. Moreover, real estate owners do not differ from other households in terms of other reasons that influence the propensity to consume.
By contrast, the results of the survey do not suggest that households are restricting their consumption in response to the looser fiscal policy because they fear future tax increases (Ricardian behaviour). The findings for Germany differ from ECB survey results for the euro area (see European Central Bank (2025)).
Moreover, this is initially only true of households forming more reserves to renovate their real estate holdings. The survey does not provide a clear indication of whether this is mainly because of higher construction costs, as in the national accounts.
The question on the current propensity to consume does not refer to a specific reference period. It is reasonable to assume that households assessed this in comparison with their subjective normal level.

The recovery in housing construction investment is expected to continue over the forecast horizon, but will be dampened in the short term by new stress factors. Housing construction investment rose more strongly in the fourth quarter of 2025 than assumed in the December Forecast for Germany. In principle, a recovery had been on the cards for some time, in line with rising demand indicators such as building permits. At the beginning of 2026, however, construction activity was significantly dampened by unfavourable weather conditions. Accordingly, housing investment declined markedly in the first quarter of 2026. As from the second quarter, the underlying impulses from higher demand should generally have a bolstering effect. In addition, the normalisation of construction activity following weather-related restrictions is likely to result in a short-term upward movement. However, this catch-up effect will be dampened by several factors. Households’ losses in purchasing power, higher mortgage interest rates and increased energy and construction costs as a result of the conflict in the Middle East are dampening demand and making it harder to finance new housing projects. In addition, there are potential supply bottlenecks that could further delay planned projects. According to the ifo Institute, both the assessment of the situation and expectations in the housing construction sector have deteriorated significantly since the start of the war. The latter merely stabilised at a low level in May. Overall, a countermovement that does not fully offset the first-quarter slump is assumed for the summer half-year. Over the remainder of the forecast horizon, the resurgence in households’ real disposable income and the persistently high demand for housing will bolster demand. At the same time, higher financing costs will continue to curb investment, with the result that growth in housing construction investment will show limited momentum. Nevertheless, they will make a marked contribution to the recovery of GDP in 2027 and 2028.

Private residential investment

Real government demand will rise substantially up to 2028. Significantly increased defence expenditure will be the main driver of this development. Military investment in machinery and equipment will rise, in particular. Non-military investment, too, will increase considerably. This will mainly involve infrastructure and digitalisation projects, and will fall under the categories of investment in machinery and equipment and construction as well as other assets. Furthermore, government consumption will rise significantly. Social transfers in kind (particularly those provided by the health and long-term care insurance schemes) will continue to grow markedly. This is due to demographic developments and, initially, also to benefit increases. From 2027 onwards, however, assumed savings in connection with the health reform will dampen the increase somewhat (see the section entitled “Fiscal policy assumptions”). In addition, local governments will put the brakes on growth in current operating expenditure and personnel expenditure in order to reduce their high deficits.

The steep increase in the price of oil will reinforce the downward trend in the current account surplus that was expected due to relatively strong domestic demand. From the summer of 2026 onwards, real imports will consistently increase somewhat more strongly than real exports. This is a reflection of the comparatively strong domestic demand, to which expansionary fiscal policy will contribute. In particular, rising government investment in machinery and equipment is associated with increased imports, as an import share of just under 50 % is assumed here. This alone means that a further decline in the current account surplus is already on the cards – a development amplified still further by the terms-of-trade shock triggered by oil prices. This is because, even if it is assumed that oil prices will fall again, they will not return to their pre-crisis level, and the terms of trade will recover only partially by the end of the forecast horizon. As a result, the trade balance will deteriorate further, and the current account surplus (as a percentage of nominal GDP) will fall from 4.5 % in 2025 to 3.3 % in 2028.

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3.6 The short-term forecast for the labour market

The better-than-expected economy in the winter half-year of 2025/26 did not support employment. Strong structural change continued to result in job cuts. In addition to low-paid part-time employment and temporary agency work, the latter now also includes employment subject to social security contributions on aggregate. Employment continued to decline in the industrial sector. At the same time, job growth subsided in some services sectors. It no longer offset the shedding of jobs in the manufacturing sector. Total employment was lower and unemployment higher than had been expected in the December 2025 Forecast for Germany for the past six months.[30] The hours worked by employed persons increased, however.

The gloomier economy is also weighing on the short-term outlook for the labour market, and the expected recovery is moving further into the future. Short-term indicators of employment are currently at very low levels. Employment plans in the business community remain deep in contractionary territory, according to the ifo employment barometer. The IAB’s broader employment barometer, which also includes non-commercial services such as healthcare, long-term care, education and public administration, is at a relatively subdued level, too. The low number of vacancies newly reported to the Federal Employment Agency rounds out this picture. The transition rates from employment to unemployment are only slightly elevated. However, the transition rates from unemployment to employment are at a particularly low level. This means that while firms are not letting staff go on a large scale, they are also hiring very few new staff. This is because many firms have not yet fully adjusted their headcounts to the depressed order situation. Against this backdrop, employment is likely to decline a little more in the coming months and to stabilise only towards the end of the year. More intensive use of remaining staff will bolster productivity. Average working hours will also rise further.

Unemployment is likely to go up only a little at first, before starting to decline. The IAB unemployment barometer is in slightly negative territory, but has gradually improved in recent months. The labour force has been shrinking since the beginning of the year. Because the labour supply is declining due to demographics, falling employment does not automatically mean rising unemployment.

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3.7 The forecast for negotiated wages in this year and the next

Negotiated wages are rising much more strongly in 2026 than in the previous year, at a rate of 2.9 %. This is mainly because base effects from inflation compensation bonuses[31] from 2024 had a wage-reducing effect last year. This kind of effect is no longer present this year. In turn, comparatively high wage agreements from the period of high inflation are still having an impact. However, new agreements are themselves likely to be more restrained. They have so far been somewhat below the expectations set out in the December forecast. The manufacturing sector, in particular, is expected to see low new agreements in 2026. This is demonstrated by the weak agreement in the chemicals industry, which envisages only a marginal wage increase of 1 % in annualised terms. In addition to the cyclical and structural burdens that industry had already been facing for some time, there were new burdens stemming from the war in the Middle East. As a result, wage agreements that are still pending over the remainder of the year are likely to contain only moderate wage increases. This will probably mainly affect the metal-working industry, whose collective wage agreement expires in October. Given the gloomy economic situation and weaker labour demand, industrial workers are currently willing to accept losses in real wages to keep their jobs. The situation is likely to be similar in consumer-related services sectors. By contrast, other services sectors could see adjustments in the pay scales and thus stronger negotiated wage growth, on account of the higher general minimum wage, for example. Overall, as things currently stand, no noteworthy second-round effects via negotiated wages are expected in the current year (for a definition of such effects, see supplementary information “Definitions of direct, indirect and second-round effects of an increase in energy commodity prices”). Many collective agreements run for long periods, and experience shows that strong price surges, if they are persistent, have a significantly delayed impact on negotiated wages.

Negotiated wage growth is likely to be slightly weaker next year. Economic conditions are expected to improve in 2027. This is likely to result in higher new wage agreements again. On an annual average, however, aggregate wage growth will be somewhat weaker, at 2.7 %. This is because weaker agreements from 2025 and 2026 will still be having an impact.

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3.8 Inflation forecast for 2026

The inflation rate rose to almost 3 % after war broke out in Iran. In May, too, inflation as measured by the Harmonised Index of Consumer Prices (HICP) was still 2.7 % according to the flash estimate, which was 0.5 percentage point above the rate expected in the December 2025 Forecast for Germany. This was mainly due to energy prices, which have risen significantly since March as a result of the war in the Middle East. Fuel and heating oil prices, in particular, rose more sharply than assumed in the December forecast. This was despite the temporary dampening of energy prices in May and June stemming from the time-limited lowering of energy tax on petrol and diesel (fuel rebate). By contrast, inflation in food prices was much weaker than expected. This was due to strong declines in the prices of dairy products in recent months. Prices for non-energy industrial goods and services developed broadly in line with the December forecast. This therefore also applies to the core rate, which stood at 2.6 % in May.

The HICP rate is expected to climb above 3 % in the coming months. The direct effects of higher energy commodity prices have probably already largely fed through to fuel and heating oil prices. After the temporary fuel rebate expires, energy inflation is likely to be higher again at first. Looking at gas, there is likely to be a lag before households feel the effects of higher wholesale prices. This is due to longer-term procurement and contract structures. Food price inflation will likely pick up as agricultural producer prices are expected to rise and energy costs will be higher. In the case of tobacco products, the planned increase in tobacco tax will probably push up prices towards the end of this year and the start of next year. However, inflation rates for dairy products will remain negative until the end of the year thanks to the steep price cuts at the start of the year. Overall, this will dampen the annual average rate for food in 2026. For non-energy industrial goods, indirect effects from the surge in energy prices are likely to gradually gain in importance. Higher production and transport costs will probably be passed on to households only after a lag. In March and April, however, there were already price increases at the upstream stages of production. Services inflation is likely to remain more or less constant at first. The waning growth in wage costs will have a dampening effect. By contrast, the rise in rents is likely to continue increasing. Higher energy prices are expected to play a major role only in selected services sectors. These include travel and transport services, whose prices are comparatively dependent on energy commodities. Overall, the inflation rate will rise to 2.9 % in 2026. By contrast, the core rate will fall slightly this year to 2.6 %. This reflects easing cost pressures from wages and subdued demand on the one hand and increasing indirect effects on the other.

HICP components in Germany: forecasts and actual developments

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3.9 Key figures of the macroeconomic forecast

**Table 1.5: Key figures of the macroeconomic forecast**
Year-on-year percentage change, calendar adjusted¹
Item	2025 ²⁾	2026	2027	2028
GDP (real)	0.3	0.5	0.8	1.4
GDP (real, unadjusted)	0.2	0.7	0.9	1.2
Components of real GDP
Private consumption	1.5	0.3	0.8	1.1
Memo item: Saving ratio (gross)³	19.2	19.2	19.1	18.8
Memo item: Saving ratio (net)⁴	10.3	10.2	10.1	9.8
Government consumption	1.5	2.6	1.5	2.3
Gross fixed capital formation	0.0	1.6	2.4	2.9
Business investment⁵	– 1.4	– 0.5	0.3	2.1
Private housing construction investment	– 2.0	– 1.1	1.9	1.8
Public sector gross fixed capital formation	8.9	13.3	9.4	6.7
Exports	– 0.7	1.3	1.1	2.1
Imports	3.2	1.2	2.2	3.1
Memo item: Current account balance⁶	4.5	4.1	3.6	3.3
Contributions to GDP growth⁷
Domestic final demand	1.1	1.0	1.2	1.7
Changes in inventories	0.7	– 0.6	0.0	0.0
Exports	– 0.3	0.5	0.5	0.9
Imports	– 1.2	– 0.5	– 0.9	– 1.2
Labour market
Total hours worked⁸	– 0.1	0.0	0.2	0.4
Employed persons^2,3	0.0	– 0.3	0.0	0.2
Unemployed persons⁹	2.9	3.0	2.9	2.7
Unemployment rate¹⁰	6.3	6.4	6.2	5.7
Memo item: ILO unemployment rate¹¹	3.8	4.1	3.9	3.5
Wages and wage costs
Negotiated wages¹²	2.3	2.9	2.8	3.0
Gross wages and salaries per employee	4.5	3.5	3.1	3.2
Compensation per employee	4.9	3.5	3.1	3.8
Real GDP per employed person	0.4	0.8	0.7	1.1
Unit labour costs¹³	4.6	2.7	2.3	2.6
Memo item: GDP deflator	3.0	2.7	2.7	2.3
Consumer prices¹⁴	2.3	2.9	2.7	1.9
Excluding energy	2.8	2.6	2.9	2.4
Energy component	– 2.3	5.6	0.7	– 3.3
Excluding energy and food	2.8	2.6	2.5	2.3
Food component	2.7	2.6	4.4	2.9
Sources: Federal Statistical Office, Federal Employment Agency, Eurostat. Annual figures for 2026 to 2028 are Bundesbank forecasts. 1 If calendar effects present. 2 Data as at 27 May 2026. 3 Share of disposable income (including the change in pension entitlements) and households’ depreciation that is not consumed. 4 Share of disposable income (including the change in pension entitlements) that is not consumed after deducting households’ depreciation. 5 Private non-residential fixed capital formation. 6 As a percentage of nominal GDP. 7 In arithmetical terms, in percentage points. Discrepancies in the totals are due to rounding. 8 Domestic concept. 9 In millions of persons (Federal Employment Agency definition). 10 As a percentage of the civilian labour force. 11 Internationally standardised as per ILO definition, Eurostat differentiation. 12 Unadjusted figures, monthly basis. Pursuant to the Bundesbank’s negotiated wage index. 13 Ratio of domestic compensation per employee to real GDP per employed person. 14 Harmonised Index of Consumer Prices (HICP), unadjusted figures.

**Table 1.6: Key figures of the macroeconomic forecast – non-calendar adjusted**
Year-on-year percentage change
Item	2025¹	2026	2027	2028
GDP (real)	0.2	0.7	0.9	1.2
GDP (real, unadjusted)	0.3	0.5	0.8	1.4
Components of real GDP
Private consumption	1.3	0.5	0.9	1.0
Memo item: Saving ratio (gross)²	19.2	19.2	19.1	18.8
Memo item: Saving ratio (net)³	10.3	10.2	10.1	9.8
Government consumption	1.5	2.6	1.5	2.3
Gross fixed capital formation	– 0.2	2.2	2.7	2.4
Business investment⁴	– 1.5	0.3	1.0	1.5
Private housing construction investment	– 2.2	– 0.4	2.2	1.1
Public sector gross fixed capital formation	8.8	14.6	8.5	6.6
Exports	– 0.9	1.9	1.4	1.6
Imports	3.1	1.7	2.4	2.7
Memo item: Current account balance⁵	4.5	4.1	3.7	3.3
Contributions to GDP growth⁶
Domestic final demand	1.0	1.3	1.4	1.6
Changes in inventories	0.7	– 0.6	– 0.1	0.0
Exports	– 0.4	0.8	0.6	0.6
Imports	– 1.2	−⁠ 0.7	– 0.9	– 1.1
Labour market
Total hours worked⁷	– 0.2	0.3	0.4	0.0
Employed persons⁷	0.0	– 0.3	0.0	0.2
Unemployed persons⁸	2.9	3.0	2.9	2.7
Unemployment rate⁹	6.3	6.4	6.2	5.7
Memo item: ILO unemployment rate¹⁰	3.8	4.1	3.9	3.5
Wages and wage costs
Negotiated wages¹¹	2.3	2.9	2.8	3.0
Gross wages and salaries per employee	4.5	3.5	3.1	3.2
Compensation per employee	4.9	3.5	3.1	3.8
Real GDP per employed person	0.2	1.1	0.9	0.9
Unit labour costs¹²	4.7	2.4	2.2	2.9
Memo item: GDP deflator	3.0	2.7	2.7	2.3
Consumer prices¹³	2.3	2.9	2.7	1.9
Excluding energy	2.8	2.6	2.9	2.4
Energy component	– 2.3	5.6	0.7	– 3.3
Excluding energy and food	2.8	2.6	2.5	2.3
Food component	2.7	2.6	4.4	2.9
Sources: Federal Statistical Office, Federal Employment Agency, Eurostat. Annual figures for 2026 to 2028 are Bundesbank forecasts. 1 Data as at 27 May 2026. 2 Share of disposable income (including the change in pension entitlements) and households’ depreciation that is not consumed. 3 Share of disposable income (including the change in pension entitlements) that is not consumed after deducting households’ depreciation. 4 Private non-residential fixed capital formation. 5 As a percentage of nominal GDP. 6 In arithmetical terms, in percentage points. Discrepancies in the totals are due to rounding. 7 Domestic concept. 8 In millions of persons (Federal Employment Agency definition). 9 As a percentage of the civilian labour force. 10 Internationally standardised as per ILO definition, Eurostat differentiation. 11 Unadjusted figures, monthly basis. Pursuant to the Bundesbank’s negotiated wage index. 12 Ratio of domestic compensation per employee to real GDP per employed person. 13 Harmonised Index of Consumer Prices (HICP), unadjusted figures.

4 List of references

Acharya, V. V., M. Crosignani, T. Eisert and C. Eufinger (2025), How Do Supply Shocks to Inflation Generalize? Evidence From the Pandemic Era in Europe, Federal Reserve Bank of New York, Staff Report, No 1164.

Alvarez, J., J. Bluedorn, N. Hansen, Y. Huang, E. Pugacheva and A. Sollaci (2022), Wage-Price Spirals: What is the Historical Evidence?, IMF Working Paper WP/22/221.

Angelini, E., M. Darracq Pariès and S. Zimic (2025), The 2021-24 inflation surge through the lens of the ECB-BASE model, European Central Bank, Economic Bulletin Issue 3/2025.

Baba, C. and J. Lee (2022), Second-Round Effects of Oil Price Shocks – Implications for Europe’s Inflation Outlook, IMF Working Papers, Issue 173.

Battistini, N., H. Grapow, E. Hahn and M. Soudan (2022), Wage share dynamics and second-round effects on inflation after energy price surges in the 1970s and today, European Central Bank, Economic Bulletin Issue 5/2022, Box 2.

Boeck, M. and T. O. Zörner (2025), Natural gas prices, inflation expectations, and the pass-through to euro area inflation, Energy Economics, Vol. 141.

Coibion, O., D. Georgarakos, Y. Gorodnichenko, G. Kenny, J. Meyer and T. Pairan (2026), Geopolitical risk and scarring effects on consumer expectations: insights from the wars in Ukraine and Iran, European Central Bank, The ECB Blog, 29 May 2026.

Deutsche Bundesbank (2026a), Overview, Monthly Report, May 2026.

Deutsche Bundesbank (2026b), Impact of demographic change on the labour market and economic growth in Germany – challenges and scope for action, Monthly Report, June 2026, article to be released on 18 June 2026.

Deutsche Bundesbank (2026c), Global and European setting, Monthly Report, May 2026.

Deutsche Bundesbank (2026d), Government investment: gear new scope for borrowing towards infrastructure, Monthly Report, January 2026.

Deutsche Bundesbank (2026e), Sectoral structural change and its impact on productivity growth in the euro area, Monthly Report, March 2026.

Deutsche Bundesbank (2025a), Forecast for Germany: Economy gradually returns to recovery path, Monthly Report, December 2025.

Deutsche Bundesbank (2025b), The macroeconomic effects of heightened uncertainty, Monthly Report, May 2025.

Deutsche Bundesbank (2025c), Effects of heightened uncertainty on the German economy, Monthly Report, November 2025.

Deutsche Bundesbank (2025d), The EU fiscal guidelines for Germany explained, Monthly Report, August 2025.

Deutsche Bundesbank (2025e), What’s behind the sustained decline in German export market shares?, Monthly Report, July 2025.

Deutsche Bundesbank (2024a), Wage developments in Germany: current situation, comparison with the euro area, and outlook, Monthly Report, October 2024.

Deutsche Bundesbank (2024b), Commentaries, Monthly Report, April 2024.

Deutsche Bundesbank (2023), The role of inflation and inflation expectations in wage negotiations during the period of high inflation, Monthly Report, August 2023, pp. 54 f.

Deutsche Bundesbank (2019), The relevance of surveys of expectations for the Deutsche Bundesbank, Monthly Report, December 2019.

Enders, A. and Z. Enders (2017), Second-round effects after oil-price shocks: Evidence for the euro area and Germany, Economic Letters, Vol. 151, pp. 208-213.

European Central Bank (2026), Eurosystem staff macroeconomic projections for the euro area, June 2026.

European Central Bank, (2025), The household saving rate revisited: recent dynamics and underlying drivers, Economic Bulletin, Issue 8/2025.

European Central Bank (2014), Indirect effects of oil price developments on euro area inflation, Monthly Bulletin, December 2014, Box 3, pp. 54 ff.

European Central Bank (2004), Oil prices and the euro area economy, Monthly Bulletin, November 2004, pp. 55 ff.

European Commission (2026), Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the European Union, June 2026.

Federal Statistical Office (2025), Sparquote in Deutschland mit 10,3 % im 1. Halbjahr 2025 leicht unter Vorjahresniveau, press release of 28 October 2025.

Federal Statistical Office (2022), Wohnsituation privater Haushalte 2022 in Deutschland, Zusatzprogramm Wohnen des Mikrozensus 2022.

Gautier, E., C. Conflitti, D. Enderle, L. Fadejeva, A. Grimaud, E. Gutiérrez, V. Jouvanceau, J.-O. Menz, A. Paulus, P. Petroulas, P. Roldan-Blanco and E. Wieland (2026), Consumer Price Stickiness in the Euro Area During an Inflation Surge, European Central Bank, Working Paper No 3181.

Gühler, N and O. Schmalwasser (2020), Anlagevermögen, Abschreibungen und Abgänge in den Volkswirtschaftlichen Gesamtrechnungen, WISTA – Wirtschaft und Statistik, Federal Statistical Office, Wiesbaden, 72(3), pp. 76-88.

Haertel, T., B. Hamburg and V. Kusin (2022), The macroeconometric model of the Bundesbank revisited, Deutsche Bundesbank Technical Paper No 01/2022.

Lane, P. (2026), Analytical perspectives on energy supply shocks, Dinner remarks by Philip R. Lane, Member of the Executive Board of the ECB, at the Centre for European Reform, London, 13 May 2026.

Malmendier, U. and S. Nagel (2016), Learning from inflation experiences, The Quarterly Journal of Economics, Vol. 131(1), pp. 53-88.

Weber, I., E. Wasner, M. Lang, B. Braun and J. van’t Klooster (2025), Implicit coordination in sellers’ inflation: How cost shocks facilitate price hikes, Structural Change and Economic Dynamics, Vol. 74, pp. 690-712.

Seasonal adjustment here and in the remainder of this text also includes adjustment for calendar effects, provided they can be verified and quantified. The December 2025 Forecast for Germany projected a cumulative increase in GDP of 0.2 %. See Deutsche Bundesbank (2025a).
See Deutsche Bundesbank (2025a).
According to information from the Federal Statistical Office, historical HICP tables for Germany had to be revised when the new COICOP classification was introduced at the start of 2026. The revision was implemented with the publication of the final May figures on 12 June 2026. As a result, the historical HICP figures shown in this forecast may differ from the revised official figures.
This refers to the date on which the technical assumptions were set, which include the crude oil price. That date was 21 May 2026.
One possible factor here is that rising foreign demand, particularly from the United States, is being supported by huge demand induced by the increasing proliferation of artificial intelligence for products such as microchips. However, this is likely to do relatively little for the German export industry.
This multiplier is obtained from the fiscal stimulus and GDP growth effect. For the analysis, the cyclically adjusted deficit was decomposed into various transmission channels. The GDP effects were then determined predominantly by using the Bundesbank's macroeconometric model to run simulations. For certain fiscal categories, no GDP effects were assumed. This concerns interest expenditure and transactions with non-residents, including transfers to Ukraine. For infrastructure and defence expenditure we assume that the additional government spending encounters a dearth of capacity in the economy. This will lead to increased upward pressure on prices, especially in the construction and defence industries. The implied fiscal multiplier in the forecast is therefore somewhat lower than suggested by the elasticities in the Bundesbank’s macroeconometric model. See Haertel et al. (2022).
As the expected investment in defence will play an important role in GDP growth, actual quarterly GDP growth rates may be significantly more volatile than assumed in the forecast. Investment in machinery and equipment is recorded in the national accounts at the time of delivery, which, especially in the case of armaments, cannot be forecast precisely on-the-quarter.
Non-military investment (as defined in the national accounts) is considered additional if it increases the ratio of non-military investment to nominal trend GDP compared with 2024.
This is because the unfavourable demographics will no longer be fully offset by rising labour force participation and immigration. Net immigration will be lower over the forecast horizon than in most of the preceding years: In 2025 it had fallen by nearly one-half, to 235,000 people, compared with the previous year. The immigration assumption for the years 2026 to 2028 is 250,000 persons per year, which corresponds to long-term average immigration to the Federal Republic of Germany over the past 70 years. For more information on the impact of demographic change on the labour market and growth potential in Germany, see also Deutsche Bundesbank (2026a), Chapter 3.4.
See Deutsche Bundesbank (2026b).
Prices for some petroleum-based products such as motor fuels or kerosene rose more sharply than was envisaged due to the surge in crude oil prices.
See Deutsche Bundesbank (2025a), supplementary information “Impact of the introduction of the EU Emissions Trading System 2 on consumer prices".
For more information on commodity market developments and a comparison between the current situation and the 2021/22 energy crisis, see Deutsche Bundesbank (2026c).
All data on global economic growth and global trade refer to global aggregates excluding the euro area.
In February 2026, the US Supreme Court declared that the country-specific import tariffs mandated by executive order were unlawful. Since then, however, the United States has temporarily imposed a substitute special tariff of 10 %. This also applies to most EU products. In addition, sector-specific tariffs remain in force. The effective US tariff rate on imports from Germany has barely changed overall compared with the December forecast. However, uncertainty surrounding US tariff policy remains high. In the meantime, the US President has threatened to raise tariffs on car imports from the EU to 25 %.
This definition of defence expenditure is based on the COFOG Classification of the functions of government, which, as part of the national accounts, allows consistent classification. It is narrower and more clearly defined than the NATO definition.
For more information on central government’s use of the Infrastructure and Climate Neutrality Fund and the conditions for state and local governments, see also Deutsche Bundesbank (2026d).
The forecast already incorporates fiscal policy measures as soon as sufficient details have been provided and their implementation is considered likely.
The draft bill for a reform of the long-term care insurance scheme submitted by the Ministry of Health was only published after the Forecast was finalised and was therefore disregarded.
Without the reform, the average supplementary contribution rate to the health insurance scheme would be around 1 percentage point higher by 2028.
Cyclical and one-off effects are factored out here.
For state and local governments, the aggregate Forecast does not provide a more precise indication of the adjustment needed to comply with their respective budgetary requirements. Even without deducting cyclical burdens, the projected deficit of the federal states as a whole will remain below the national borrowing limit of 0.35 % of GDP. For individual states, consolidation measures may nevertheless be necessary. Despite an assumed economical budgetary stance and the withdrawals from the Infrastructure and Climate Neutrality Fund, the projected deficit of local governments as a whole will probably overshoot the regular budgetary requirements.
This escape clause only applies to defence expenditure as defined in the COFOG. It is also limited in terms of time and volume. For more information on the national escape clause in the EU rules and the EU requirements on net expenditure, see Deutsche Bundesbank (2025d).
See European Commission (2026). In addition, the European Commission recently indicated that the scope of the escape clause could be broadened. This means that, in future, there is also likely to be scope for deficits in the interests of strengthening energy resilience. The specific design, and whether Germany is affected, were not known as this report went to press.
Net expenditure is total expenditure adjusted for interest expenditure, discretionary revenue measures, cyclical unemployment expenditure, and certain EU-financed expenditure and one-off effects. If net expenditure growth in a given year is higher or lower than the agreed limit, this is recorded on a (cumulative) control account. If the deficit exceeds 0.6 % of GDP, the requirements are deemed to have been breached. In this Forecast, this shortfall is exceeded by around ¼ % of GDP in 2028 (taking account of the defence exemption).
For more information, see Deutsche Bundesbank (2024b), Chapter 2.2.
Economic data published after the forecast was finalised largely corroborate this assessment. Industry got off to a relatively robust start in the second quarter: although incoming orders largely fell off in April from their strong March levels, their underlying tendency was still stable. In addition, whilst production in April treaded water on the previous month, real sales actually picked up slightly. Real goods exports moved largely sideways in April and remained considerably above the average of the previous quarter. In construction, catch-up effects made themselves felt, as expected. Building construction and civil engineering both saw significant growth in April following weather-related problems at the beginning of the year. Real retail trade in April fell short of its first-quarter level, whereas private passenger car registrations picked up perceptibly in April and May.
See Deutsche Bundesbank (2026a), Chapter 3.4.
For a detailed analysis of the development of the German export industry’s global market shares and their determinants, see Deutsche Bundesbank (2025e, 2026e).
The increasing use of AI has barely had an impact on employment overall, however; see Deutsche Bundesbank (2026b), Supplementary information "Productivity and labour market effects of generative artificial intelligence in German enterprises".
Tax-free and social contribution-exempt inflation compensation bonuses were paid out up until 31 December 2024. In 2025, their discontinuation caused the annual growth rates to be considerably smaller.

Monthly Report – June 2026 Vol. 78 No 6