Germany: Industrial pivot supports recovery – BNP Paribas

BNP Paribas economists note Germany is moving away from its traditional reliance on automotive and chemicals towards defence, aerospace and electronic equipment. They highlight strong new industrial orders in communications, electronics and aerospace, and expects German growth to improve in 2026 and 2027, although it warns that energy risks and exposure to China-sensitive sectors still pose short-term challenges.

Defence and tech drive German orders

"The German economy is gradually moving away from its traditional model. Historically reliant on the automotive and chemical industries – two sectors facing particularly fierce competition from China – it is now shifting its focus towards defence, aerospace, and electronic and electrical equipment."

"German Mittelstand companies are capitalising on defence, electrification and AI investment cycles through inputs into sectors such as electronics and IT, and electrical equipment. This is underlined by the sustained rise in new orders for communications equipment (+30% since January 2025[2]), electronic parts (+11%) and precision optical instruments (+30%)."

"Orders for ‘other transport equipment’ (accounting for 5.8%) – driven mainly by the aerospace sector – are also seeing an unprecedented rise in volumes. This rebounding demand is still hampered by production constraints. However, it points to a recovery in industrial activity."

"There are still significant short-term risks, as the energy crisis caused by the conflict in the Middle East could hit the German automotive and chemicals sectors even harder. Despite this, German growth is expected to strengthen to 0.8% in 2026, and then 1.1% in 2027."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)