Germany: A chance to shake off some negativity

Research evidence excerpt

Germany: A chance to shake off some negativity

Greg Fuzesi (44-20) 7134-8310 Europe Economic Research J P M O R G A Ngreg.x.fuzesi@jpmorgan.com

J.P. Morgan Securities plc 26 June 2026

Germany: A chance to shake A few other observations we made for the Euro area also

apply to Germany. First, delivered potential has recovered to

off some negativity trend, led by higher productivity growth. Second, income

growth has become more balanced, with profits (gross operat-

• German growth was picking up before the Iran war ing surplus) accelerating recently towards the more elevated

• Incomplete fiscal delivery and slow reforms have led growth in employee compensation. Third, profit margins, as

measured by unit profits in the national accounts, have started to negativity, with no sign of lift in private capex

to edge upwards again from already high levels. Fourth,

• Fading energy shock and new momentum on reforms household real disposable income is likely to be hit hardest in

give government a chance to change the narrative 2Q26 by the energy price shock, with real incomes likely to

begin to recover in 3Q26. Finally, gross value added in manu-A couple of weeks ago, we argued that the Euro area econo-

facturing has started to edge up even as IP has continued tomy was more resilient than is often recognised. As the energy

fall (Figure 2). GVA is arguably the more reliable statistic.shock fades, the Euro area composite PMI picked back up in

Industrial orders and backlogs are also increasing again,June. Germany stood out, however, with a 0.8pt decline to a

helped by government defence orders.level signalling stagnant GDP. This reinforces a widespread

perception that Germany’s fiscal shift and reform efforts are

Figure 2: German manufacturing outputfalling short.