By Miranda Murray
BERLIN, Oct 30 (Reuters) – Germany’s economy grew more than expected in the third quarter despite disruptions linked to the Iran war, though economists warned the expansion remained heavily reliant on government spending.
Gross domestic product increased by 0.2% compared with the previous three-month period, preliminary data from the statistics office showed on Friday, slightly more than a rise of 0.1% forecast by analysts polled by Reuters.
Compared with a year earlier, the economy grew by 1.3% after adjusting for prices.
The office said household and government consumption had increased slightly in the third quarter, while investment declined and the strong export growth seen in the first half of 2026 also slowed noticeably.
The data pointed to a fourth straight quarter of recovery in Europe’s largest economy, helped by increased public spending, even as private sector momentum remained subdued.
Under Chancellor Friedrich Merz, government funding has surged since Berlin last year approved a €500 billion ($560 billion) infrastructure fund and exempted much defence spending from its debt brake rules.
The economy grew by 0.3% in the second quarter and 0.4% in the first quarter, according to the office.
A temporary fuel tax cut introduced this month to cushion households from the surge in oil prices caused by the Iran war will likely help the economy hold up in the fourth quarter as well, said Deutsche Bank analyst Marc Schattenberg.
Based on data from key German states, national inflation is likely to drop this month from the 3.3% recorded in September.
GOVERNMENT SPENDING DRIVES RECOVERY
While analysts broadly agree Germany is emerging from a prolonged slowdown, many stop short of calling the recovery self-sustaining because private investment remains weak.
A lack of sweeping reforms means Germany’s attractiveness as a place to do business will remain impaired, preventing a significant recovery in private investment, Commerzbank chief economist Joerg Kraemer said.
Analysts pointed to the increased government spending on infrastructure and defence as the main driver of the recovery.
“Without this artificially initiated impulse, economic output would probably have stagnated,” said Alexander Krueger, chief economist at Bethmann HAL bank.
Jens-Oliver Niklasch, economist at LBBW bank, said that next year would reveal whether the economic revival is sustainable or just a flash in the pan.
“For sustained, higher growth, investment would need to pick up more substantially, which, to date, has not been the case,” he said.
The German government expects the economy to grow by 1.3% in 2026 and 1.1% in 2027, with the economy ministry saying earlier this month that the Iran war, and resulting high energy prices, is not hurting the economy as much as feared.
In a further positive sign, the Ifo economic institute’s closely watched business climate index rose for a sixth straight month in October.
($1 = 0.8930 euros)
(Reporting by Miranda Murray; Editing by Toby Chopra)
Comments