Deutsche Bundesbank president Joachim Nagel said Germany's economy is recovering faster than expected, with growth likely to accelerate in the fourth quarter of the year.
Speaking at a conference in Riga, the Latvian capital, Nagel said the German central bank's interim assessments showed the rebound was stronger than officials had anticipated during the summer. He warned, however, that long-standing structural weaknesses still pose a significant obstacle to economic recovery.
According to Reuters, Germany, the world's third-largest economy, remained largely stagnant for most of the past three years as its powerful industrial sector lost part of its competitiveness. The picture began to improve during 2026 as the recovery gradually gained momentum, helped by a substantial increase in state spending on defence and public infrastructure.
The Frankfurt-based Bundesbank is Germany's central bank and the largest national central bank within the Eurosystem. As its president, Nagel also sits on the Governing Council of the European Central Bank, which sets monetary policy across the eurozone.
Manufacturing rebound lifts growth forecasts
The improvement in the economic outlook is also reflected in revised estimates from analysts. In June, the Bundesbank forecast that the German economy would grow by just 0.5% in 2026. Most major forecasts now converge on a growth rate more than double that initial projection, and the positive momentum is expected to continue in the coming years.
Nagel noted that the biggest surprise during this year has come from the turnaround in manufacturing, with a particularly positive contribution recorded in the chemical industry and the electrical equipment sector. Those industries form a central pillar of Germany's export-oriented industrial base, which supplies chemicals, machinery, and electrical components across European and global markets.
The recent trend in industrial orders has also raised expectations that the improvement in factory activity will continue, further strengthening the growth path of Europe's largest economy.
Sluggish consumption and investment weigh on recovery
Despite the encouraging signs in industry, the recovery is not yet broad-based, as major areas of domestic economic activity continue to show weakness.
Nagel said private consumption remains sluggish, while investment in machinery and equipment fell in the second quarter. He stressed that an improvement in industrial production is not enough on its own to ensure a balanced and sustainable recovery.
At the same time, Germany continues to face a particularly low potential growth rate, an economic measure of the pace at which a country can expand over the long run using its available workforce, capital stock, and productivity. Addressing that constraint requires deeper reforms to strengthen the productive capacity of the German economy over the long term.
