Germany Q1 Growth 0.3% as Volkswagen Profit Drops 28%

The Federal Statistics Office's first-quarter print beat expectations. Germany's economy grew 0.3 percent in Q1 2026 on higher private and government consumption and rising exports, despite the energy-cost shock from the Iran war and the still-unresolved Hormuz closure. Unemployment remained above three million in April, and labour-market participation continued to drift downward in industrial regions. Volkswagen reported a 28.4 percent profit drop on weaker sales and industry headwinds — a number that landed harder politically than economically given VW's role in the SPD's industrial-policy narrative. The European Central Bank left interest rates unchanged at 2 percent, framing the stagflation backdrop as one of unusually concentrated supply-side pressure (Iran energy + fertiliser-supply shock + shipping disruption) overlaid on a softening demand profile. The Bundesbank's accompanying commentary — and the joint letter from Austria, Germany, Italy, Portugal and Spain to EU Climate Commissioner Wopke Hoekstra calling for an EU-level windfall tax on oil and gas companies profiting from the price surge — together set the tone for the late-April policy landscape: an explicit EU-level fiscal-redistribution lever to soften the energy shock's distributional impact.

The coalition narrowly avoided an immediate crisis. Chancellor Friedrich Merz and Vice-Chancellor Lars Klingbeil secured last-minute agreements on health reform and the building-modernisation law, allowing the cabinet to keep the Bundestag schedule. The deals were reached after tense negotiations, with CDU Health Minister Nina Warken uncertain as late as Tuesday evening whether the cabinet draft would be ready. Union faction leader Jens Spahn told German media the coalition had recently fallen "out of step," noting tensions on pensions, defence-spending allocation, and migration. The cabinet's earlier-week sequence — yesterday's 2027 budget approval (€543.3 billion core, €110.8 billion net new core borrowing, €105.8 billion defence in 2027 reaching €179.9 billion / 3.1 percent GDP by 2030, all explicitly tied to the Iran-war strategic environment); Pistorius's Bundeswehr 260,000-by-2035 plan; the cabinet's prior healthcare reform with €16.3 billion savings target; the 2028 sugar-tax addition; and Söder's signal of openness to a higher tax rate above €300,000 — together described a coalition that has cleared its near-term legislative agenda but at a sustained internal political cost.

The migration ledger went the other way. Germany deported 4,807 migrants in Q1 2026, a 21 percent decline from 6,151 in the same period of 2025, according to a government response to a Left Party parliamentary question. The drop is the first decrease in five years and undercuts Merz's and Interior Minister Alexander Dobrindt's pledged "return offensive" (Rückführungsoffensive). The decline was largely driven by a halving of Dublin transfers to other EU states, which fell after several governments tightened entry-screening on Dublin returnees. Berlin's prior-day deportation of 25 Afghan men convicted of serious crimes to Taliban-controlled Afghanistan — on a Freebird charter from Leipzig via Trabzon, with Dobrindt framing it as a fulfilled coalition commitment — sat awkwardly alongside the Q1 statistics: a high-profile single operation against a backdrop of a structurally weakening deportation pipeline.

The European nuclear file shifted in Germany's neighbourhood. Belgian Prime Minister Bart De Wever announced that the Belgian government and French energy company Engie would negotiate "a full takeover" of all seven of Belgium's nuclear reactors, suspending decades-old phase-out plans and developing new capacity. Only Doel and Tihange remain operational, both with operating licences recently extended to 2035; the other five were shut between 2022 and 2025 and are now to remain on standby. The decision triggered a same-day briefing in Berlin: Christian Democrats and the FDP have for two years lobbied for a re-examination of Germany's own nuclear phase-out, and the Belgian move was used by both as an evidentiary anchor; the SPD and Greens publicly held the line on the existing exit, framing nuclear as an "investment trap" against renewables.

Around the country, the day's other moving parts:

- The European Parliament's 446-63 vote in favour of a special tribunal to prosecute Russia's leadership for the crime of aggression against Ukraine drew German foreign-ministry praise and added pressure to the Berlin debate over Merz's prior-day Marsberg suggestion that a future peace deal might involve territorial compromises — a remark Berlin officials described as testing public reaction rather than as settled policy. - The cabinet's earlier 2027 defence allocation continued to be parsed in the same news cycle for what it implies about the IRIS-T supply chain and German-supported Ukrainian air-defence operations; the Atlantic Council Patriot-stocks warning remains the principal frame for European interceptor-procurement planning. - The Minden hidden-camera espionage probe — a Lithuanian national in custody, Deutsche Bahn conducting a network-wide sweep of NATO logistics nodes — widened with German prosecutors briefing parliamentary intelligence-oversight chairs on Russian-linked surveillance patterns. - UniCredit CEO Andrea Orcel's "unstoppable" framing of the Italian bank's Commerzbank takeover continued to dominate the German banking conversation; UniCredit's stake remained at 32.64 percent including derivatives, just below the 30-percent direct-stake threshold for a mandatory takeover offer.