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Germany’s manufacturing sector is finally showing signs of life after a long and painful downturn. Expectations for 2026 point to a return to growth, raising hopes that the industry may have passed its lowest point. While the rebound is expected to be modest, it would mark a clear shift after years of shrinking output and fading confidence.
A Modest Rebound After a Deep Slump
Industrial production is projected to rise by around 2% to 3% in 2026, which would represent the first increase since 2021. This improvement, however, needs to be seen in context. Manufacturing output remains roughly 15% below its 2018 peak, highlighting how severe and prolonged the decline has been. Even with growth returning, the sector is still far from reclaiming its former strength.
Government Spending as the Main Engine
The expected recovery is being driven largely by fiscal support rather than a powerful upswing in private demand. Increased public spending is beginning to translate into higher orders for industrial companies, offering some breathing room after years of weak activity. Measures aimed at easing cost pressures, particularly for energy-intensive industries, are also helping stabilize production.
Why the Momentum Could Extend
There is cautious optimism that the recovery may continue into 2027 if supportive policies remain in place. Investment incentives and improved conditions for capital spending could help reinforce the rebound and spread it more evenly across the sector. For now, the outlook depends heavily on continued policy support rather than a strong global demand cycle.
Structural Limits Still Loom
Despite the improving tone, the broader picture remains challenging. The expected gains in 2026 and beyond would not be enough to fully offset the losses of previous years. Without deeper structural reforms, a return to pre-downturn production levels appears unlikely. The recovery may stop the slide, but it does not yet signal a full reset.
The Bigger Picture
Germany’s manufacturing sector is edging toward recovery, but the path forward remains narrow. Growth is returning, confidence is slowly rebuilding, yet the industry still faces long-term hurdles that cannot be solved by fiscal support alone.
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