Volkswacht Bodensee - German growth beats forecast but energy shock looms

Output in Europe's biggest economy rose 0.3 percent from January to March compared to the previous quarter, according to provisional data from statistics agency Destatis.

Analysts surveyed by financial data firm FactSet had forecast growth of 0.2 percent. The data covered just the first month of the US-Israeli war against Iran, which began at the end of February.

The expansion was driven by growth in exports as well as higher consumer and government spending, Destatis said.

Sebastian Wanke, an economist at German public lender KfW, said it was a "surprisingly strong start to the year", particularly given the global geopolitical turmoil.

"But the war in Iran is now casting a shadow over the outlook," he added.

Growth for the fourth quarter of 2025 was however revised down to 0.2 percent, from 0.3 percent previously.

The export-driven German economy has struggled in recent years due to a manufacturing slump, high energy costs, and fierce competition, in particular from China.

It eked out meagre growth in 2025 following two straight years of recession.

Hopes had been high for a strong rebound this year driven by a public spending blitz and reforms pushed by Chancellor Friedrich Merz, but the Iran war has dimmed those expectations.

The government last week halved its growth forecast for 2026, and now expects gross domestic product to expand just 0.5 percent in 2026.

C.Kreuzer--VB