Strategy Espresso Germany The Earnings Recovery Still Ahead

Portfolio Strategy Research 10 September 2026 | 5:01AM BST

Strategy Espresso: Germany: The Earnings Recovery Still Ahead

n Growth is finally improving. Fiscal stimulus is moving from promise to delivery, Guillaume Jaisson | manufacturing is recovering, and our economists expect growth to accelerate Goldman Sachs International through 2027-28. Peter Oppenheimer | n EPS growth is coming. Consensus expects roughly 17% EPS growth for German Goldman Sachs International equities in 2027, versus 9% for the STOXX 600. Importantly, Germany is exposed Sharon Bell to many of Europe’s key growth themes, from AI and Technology to HALO | Industrials, Defence, Electrification and structural power demand, with Goldman Sachs International

additional upside from a recovery in Consumer Discretionary, although that is Elena Porfidia | not our base case. Goldman Sachs International

n Germany offers one of the best GARP opportunities globally. The DAX trades Jacinta Feng | on roughly 15x P/E, still at a substantial 25% discount to the US despite broadly Goldman Sachs International comparable medium-term earnings growth expectations. n Positioning has improved, but Germany remains under-owned. Foreign investors have returned since last year’s election as they increasingly look for diversification, but allocations have only recovered to around 2022 levels. Domestic savings also remain largely outside equity markets, although pension and capital-market reforms are slowly moving in the right direction. n The key risks are Energy and China. Higher gas prices remain the main near-term risk to Germany, weighing on both consumers and manufacturing, while Chinese competition continues to challenge Europe’s industrial engine. However, the DAX is not Germany. Only around 20% of revenues come from Germany, while Autos and Chemicals represent just 7% and 5% of market capitalisation, respectively. As a result, we believe investor perception remains significantly more negative than market reality. n Bottom line: Germany’s recovery is now visible in the data. Q3 may remain soft, but the medium-term outlook is improving. Earnings growth is broader than many investors appreciate, valuations remain more European than American, and Germany offers one of the most compelling growth-at-a-reasonable-price opportunities in Developed Markets, in our view. n Our preferred ways to invest in Germany are via “themes” and highlight baskets to track them: Fiscal (GSXEGFSC or GSSTFISC), Defence (GSSBDEFE or GSSBCIVA), CAPEX (GSSTCAPI or GSSTCAPX) and Domestic Recovery (GSXEDEDO or GSCBEDC).

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Goldman Sachs Strategy Espresso

Germany: The Earnings Recovery Still Ahead

Germany on the Rise Growth in Germany is finally improving. GDP expanded by 0.3% qoq in Q2, lifting annual growth to 1.0% yoy and taking output above its pre-energy-crisis peak reached in 2022. A year ago, the fiscal turnaround, focused on defence and investment, led our economists to become notably more optimistic on Germany. That optimism is now being validated in the hard data. Manufacturing activity has recovered despite higher energy prices (Exhibit 1), factory orders continue to improve, export orders have returned to 2022 levels, and fiscal policy has shifted from a future catalyst to a current tailwind. The €500bn investment programme and higher defence spending are now feeding directly into activity, with the fiscal deficit expected by our economists to widen from 2.7% of GDP in 2025 to 4.0% in 2026 and 4.6% in 2027, providing a fiscal impulse of around 0.7pp this year and 0.5pp next year. While growth in the near term may be constrained by higher energy prices, our economists expect GDP growth to improve from 0.9% in 2026 to 1.1% in 2027 and 1.3% in 2028.

Exhibit 1: Manufacturing PMI has grown the most in Germany YTD change in PMI - USA as average of ISM and S&P’s PMI, China as average of NBS and S&P’s PMI

8.0 Manufacturing PMI Services PMI

-4.0 Germany USA Japan Euro Area Italy & UK France Australia China Spain

Source: Haver…