The German economy has not slowed despite the war in the Middle East, Bundesbank President Joachim Nagel said at a joint press conference with Federal Finance Minister Lars Klingbeil as part of the meeting of G20 finance ministers and central bank governors in Asheville, USA. Germany’s gross domestic product grew perceptibly in the first half of 2026, according to the Federal Statistical Office. Last week, economic growth in the second quarter was revised upwards to 0.3 %. Exports and expansionary fiscal policy are supporting German economic activity in particular, Mr Nagel said, while firms continue to hold back on investment. The long heatwave and the resulting low water levels had a negative impact on economic activity, he added. Nevertheless, Mr Nagel said the economy is likely to expand much more strongly than expected this year.

The global economy is looking robust overall thanks to trade in technology goods related to artificial intelligence, he remarked, and global trade remains dynamic, despite repeated flare-ups of the conflict in the Persian Gulf.

However, Mr Nagel stressed that Germany cannot let up when it comes to the debt level and deficit ratio as financial markets rely on these for guidance. Although Germany’s debt is much lower than that of the United States, for example, credit-financed investment in infrastructure and defence is adding to the debt pile in Germany as well.

Energy price shock driving inflation rates worldwide

Mr Nagel noted that the conflict in the Middle East is also having an impact on inflation. Since March, the inflation rate in Germany and the euro area has been closer to 3 % than the target of 2 %. In the press statement, he underscored the good news that core inflation has fallen from 2.5 % to 2.4 %. Service prices have also come down, from 3.3 % to 3.0 %.

Monetary policy uncertainty remains

Uncertain developments in the Middle East make it very clear that the Governing Council of the ECB needs to remain flexible when it comes to monetary policy, Mr Nagel said, also in reference to the Governing Council’s external meeting in Berlin next week. In the week ahead, he said, the outlook for what might happen in monetary policy terms was relatively foreseeable. Overall, however, the data-dependent meeting-by-meeting approach has worked well, he noted, as opposed to an approach where decisions are made ahead of time. 

About the G20 and the Bundesbank’s work

The G20 is the premier informal forum for international economic cooperation. It plays a key role in shaping and strengthening the global architecture on all major international economic issues. The G20 comprises the 19 most important advanced and emerging market economies (EMEs) as well as the European Union and thus represents about two-thirds of the world's population. The G20 summit is held in a different host country each year. 

As Germany’s central bank, the Bundesbank is a member of the G20 in its own right, alongside the Federal Government. The President of the Bundesbank and an alternate attend the regular meetings of the finance ministers and central bank governors. These meetings serve as preparatory work for the monetary and financial issues covered at the annual G20 summit. 

At the meeting of finance ministers and central bank governors, the G20 looks at how the international community can prevent and manage economic and financial crises. The group also discusses how to achieve robust, sustainable and inclusive economic growth and how to enhance the international financial architecture.