The German economy continues to experience remarkable volatility, as shown by the latest evaluation of the Business Cycle Barometer from the German Institute for Economic Research (DIW Berlin). In July, the index fell to 91.3 points, reaching a level last observed in autumn 2025. A neutral 100-point mark indicates average growth; the current value signals a significant deviation from this. This year's development has been characterised by monthly alternating increases and decreases. Geraldine Dany-Knedlik, Head of Business Cycle Analysis at DIW, noted that geopolitical uncertainties, particularly the Iran war, are contributing significantly to this fluctuating trend.
This global mix of factors directly impacts the economic environment in Germany. The persistent tension from the conflict between Iran and the US, as well as the confusing situation in the Strait of Hormuz, are central factors here. Although oil prices eased slightly recently, they showed volatility in July. Dany-Knedlik identified persistently high energy prices as a significant burden, which reduces the purchasing power of private households and creates uncertainty for businesses. These factors also affect the property market, as general economic uncertainty influences investment decisions and demand for space reacts sensitively to such developments.
Demand for German export goods is further impaired by subdued global economic development. Recently added concerns about a potential cooling of the AI boom also contribute to the uncertainty. Domestic challenges also exist: while government spending packages support the economy, the concrete implementation and economic effects of the special fund for infrastructure and climate neutrality remain unclear. Furthermore, low water levels in the Rhine and other rivers, caused by a hot summer, are burdening the economy through increased freight costs.
German industry continues to prove a central burden for overall economic development. The sector, already structurally weakened, is further hampered by the repeated escalation of the Iran war and its economic consequences. A sustainable revival of industrial production and order intake is barely discernible, apart from areas benefiting from increasing defence spending. Laura Pagenhardt, also a business cycle expert at DIW, emphasised that German companies are cautious about investments and production expansions, as economic and geopolitical conditions can change at any time. For a sustainable upswing, planning certainty, based on a stabilisation of the geopolitical situation and more reliable economic policy frameworks, is essential.
Sentiment in the services sector is similarly restrained. Persistently high inflation, primarily driven by increased petrol and diesel prices, dampens consumer mood. Only a minor recovery is evident in the labour market; unemployment fell slightly, but employment also declined. This leads to a continued gloomy assessment of the business situation among service companies, although expectations have marginally brightened recently. Guido Baldi, a business cycle expert, summarised that the development of the German economy remains bumpy and, without more dynamic domestic demand, will be strongly influenced by geopolitical shocks and other crises. These comprehensive developments limit prospects for the German property market, as investment willingness and rental demand correlate closely with overall economic stability.
