A Timeless Lesson From German and UK GDP

More than three weeks into 2026 and geopolitics have dominated most headlines Fisher Investments UK follows. But some economic news has gone overlooked, in our view: Some recent data show what stocks moved on last year. The latest UK and German GDP (gross domestic product, a government-produced measure of economic output) results confirm reality wasn’t as poor as many experts we cover anticipated in 2025—illustrating a timeless lesson in what moves stocks.

Europe’s Latest Sick Man Is on the Mend

Whilst Germany’s Q4 GDP release is days away, the Federal Statistical Office (aka Destatis) announced full-year growth of 0.3% in 2025.^[i] The underlying components were mixed: Household spending (1.4% annual growth) contributed, whilst gross fixed capital information (-0.5%) and exports (-0.3%) detracted.^[ii] On a sector basis, manufacturing (-1.3%) fell for a third straight year, but services (e.g., trade, transport, accommodation and food services as well as information and communication) mostly grew.^[iii]

But the big story, in Fisher Investments UK’s view: Destatis announced Germany’s two-year long recession ended last year.^[iv] If it is news to you that Germany was in recession, we don’t think you are alone: This is the first official confirmation Germany was in a recession, and it comes as the data show it ended. Perhaps recession seemed obvious from the two straight annual GDP declines from 2023 – 2024, but they were shallow.^[v] Economic coverage Fisher Investments UK follows would frequently claim Germany was in recessionary territory, but consider: Prior to Destatis’s regular annual revision last year, German GDP alternated between growth and contraction every quarter from mid-2022 – mid-2025.^[vi] Muddy water, indeed. Now the arbiters of German GDP have declared it so, albeit, more than a year since recession ended—a timely reminder the label is backward-looking.

That said, we don’t think this confirmation is new to forward-looking stocks. We think they pre-priced the downturn before it occurred, as German stocks endured a bear market from mid-November 2021 through late September 2022—dropping -30.7% in euros (to avoid currency conversion skew)—consistent with an anticipated economic soft patch.^[vii] In comparison, the MSCI World fell -12.4% in euros over the same timeframe.^[viii] Yet a bull market in German stocks began despite recession unspooling over the next two years. (Exhibit 1)

Exhibit 1: German Stocks Moved First

Source: FactSet, as of 23/1/2026. MSCI Germany Investable Market Index returns with gross dividends, 31/12/2020 – 16/1/2026. Presented in euros. Currency fluctuations between the euro and pound may result in higher or lower investment returns.

Going into 2025, the consensus expectation was flagging growth due to both domestic (restrictive fiscal policies and protracted industrial decline) and international (geopolitical uncertainty) factors.^[ix] Fisher Investments UK has seen many analyses arguing Germany’s economy needed a boost, which is why Chancellor Friedrich Merz’s spending programme received so much hype.^[x] Yet, as the Destatis data show, we now know GDP grew last year even though Merz’s spending plan didn’t deliver the boost we saw many initially thinking it would, according to Fisher Investments UK’s review of coverage. In our view, this confirms stocks weren’t over their proverbial skis, irrationally pricing in fiscal stimulus hopes. It appears to us that even tepid growth was sufficient to exceed expectations.

UK GDP Also Fared Better Than Anticipated

UK recession chatter wasn’t as prevalent as in Germany, but many worried businesses were struggling—due in part to uncertainty from UK Chancellor of the Exchequer Rachel Reeves’s November Budget.^[xi] The data seemed to confirm late-year weakness, too: In the initial readings, the Office for National Statistics (ONS) reported monthly GDP was flat in August, contracted -0.1% m/m in September and unexpectedly fell again (-0.1%) in October.^[xii] Based on the coverage Fisher Investments UK tracked, many presumed Budget-related uncertainty was discouraging spending and investment and that the streak would continue into November.

Against that backdrop, November GDP surprised with 0.3% m/m growth.^[xiii] For all the warnings about Budget headwinds, business activity didn’t dry up. Now, some of November’s growth reflected a major automaker coming back online after a late-summer cyberattack derailed production.^[xiv] Manufacture of motor vehicles, trailers and semi-trailers did jump 25.5% m/m in November following October’s 9.6% climb and September’s -29.6% plunge.^[xv] Whilst that is skewing November data up, we also think it was a one-off that dragged the prior months down—making it a wash.

Meanwhile, services—the main driver of UK GDP—grew 0.3% m/m after October’s -0.3% dip, and interestingly, Budget uncertainty may have boosted some businesses.^[xvi] For instance, the accounting, bookkeeping and auditing activities and tax consultancy industry rose 4.6% m/m, likely benefiting from all the Budget speculation and unknown implications for household finances.^[xvii]

Looking at the bigger picture, the ONS also upwardly revised its September initial estimate from a -0.1% m/m dip to 0.1% growth.^[xviii] So UK GDP went from two monthly contractions—with another dip supposedly a given in November—to expansion in two out of those three months (with the quickest rate in November). Hence, the latest data seemingly confirm UK growth held up in the year’s back half—indicating UK stocks’ 8.5% climb in pounds since September, beating the MSCI World’s 7.0% in pounds over the same timeframe, was based on better-than-recognised fundamentals.^[xix]

These data illustrate a point Fisher Investments UK often makes: Markets are efficient discounters of widely known information, meaning they pre-price all the analyses, discussion and conversation about perceived negatives and positives that matter to stocks. Whilst stocks can move for any (or no) reason in a day, week or even month, fundamentals matter more over the longer term, in our view—and they move most on the gap between expectations and reality.

For instance, if the consensus thinks a nation or region will experience a deep, extended recession, even a shallow downturn can positively surprise. This was the case with Germany after 2022, when many commentators we follow warned Europe’s energy crisis would drive a deep, prolonged economic downturn.^[xx] Yet reality—a shallow recession, sprinkled with some quarters of weak growth—wasn’t nearly as dire.

Most importantly for investors, we think it is clear markets don’t wait for official confirmation of economic weakness or recovery. In the case of Germany, it is now 2026, and we just got official acknowledgment Germany’s economy was in recession from 2023 – 2024. Over a shorter timeframe, many experts we follow warned the UK economy would stumble last year because of the Budget. Some soft patches aside, UK GDP kept growing. If you wait for the supposed negatives to clear before starting to invest, those potentially missed bull market returns can be costly for long-term investors.