Wirtschaftsflaute: Germany in Dire Straits

Country Snapshot: How one month of war knocked Germany off its recovery trajectory and what it means for the hidden champions that power Europe's largest economy

Germany has spent years talking about Wirtschaftswunder 2.0 with AI-enhanced factories, open data ecosystems, and a fivefold increase in venture capital. In early 2026, it finally looked like the talk might become action and that Germany was starting to show a pulse again.

The ifo Business Climate Index had climbed to 88.6 in February. Factory orders had surged 8% in December: the biggest monthly jump in two years. Defence spending was feeding into industry. German equities were getting upgraded to overweight. Fund managers were expecting growth to return, citing Germany’s €500 billion infrastructure fund and a record €108 billion defence budget. Analysts projected MDAX earnings growth of over 35% for the year.

Then the US-Israeli joint strike on Iran led to the widely anticipated closure of the Strait of Hormuz, which puts Germany’s growth narrative in dire straits.