German economy grew more than expected in Q3, underpinned by state spending

Germany's Q3 Economy Exceeds Forecasts with Help from State Spending

Germany's Economic Growth and the Role of Government Spending

By Miranda Murray

Q3 GDP Performance Overview

BERLIN, Oct 30 (Reuters) - Germany's gross domestic product 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 data 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.

Consumption and Export Trends

The office said household and government consumption had increased slightly in the third quarter, while 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 on infrastructure and defence, even as private sector momentum remained subdued.

The economy grew 0.3% in the second quarter and 0.4% in the first quarter, according to the office.

Government Spending Drives Recovery

Analyst Insights on State Expenditure

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.

Future Outlook and Investment Needs

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 plan.

"For sustained, higher growth, investment would need to pick up more substantially, which, to date, has not been the case," he said.

Government and Institutional Forecasts

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.

(Reporting by Miranda Murray)