Germany’s economic recovery is expected to slow temporarily in the third quarter of 2026 after strong growth in the previous two quarters, as low water levels on the Rhine disrupt industrial activity and raise transport costs. The Bundesbank said in its September report that real GDP should expand only slightly during the quarter. Industrial production and sales fell sharply in July, while the removal of a fuel rebate weakened retail activity and high energy prices reduced consumers’ purchasing power. The bank said the economy remains relatively resilient to supply-chain disruptions and elevated energy costs, and expects growth to accelerate again in the fourth quarter if Rhine water levels normalize and conditions in the Middle East do not worsen. Its June projections put calendar-adjusted real GDP growth at 0.5% in 2026, 0.8% in 2027 and 1.4% in 2028, with expansionary defense and infrastructure spending projected to add about 1.3 percentage points to cumulative growth through 2028. The IW institute separately raised its 2026 growth forecast to 1.2% on September 20, from 0.4%, citing stronger exports and government spending in the first half. Energy commodity prices surged in August and September after renewed Middle East escalation followed the stalling of a memorandum of understanding between the US and Iran, adding to inflation risks.