German Institutes Increased 2026 Growth Forecast to 1.3 Percent

Germany's leading economic research institutes increased their 2026 growth forecast from 0.6 percent to 1.3 percent after the economy performed stronger than expected in the first half of the year. However, the institutes pointed out that the general recovery in the economy continued to be limited.

According to common forecasts, the German economy is expected to grow by 1.3 percent in 2026. In the forecast published in the spring, the growth expectation was 0.6 percent.

The institutes also increased their 2027 growth expectation from 0.9 percent to 1.1 percent. Economic growth is expected to slow down to 0.4 percent in 2028.

EXPORTS AND INDUSTRY SUPPORTED GROWTH

While Europe's largest economy exceeded expectations in the first half of the year, stronger exports, the manufacturing sector and higher public spending supported growth.

Strong global demand and the rapid increase in AI investments offset the negative impact of weak investment and consumption on growth.

The institutes expect the recovery to continue in 2027, supported by the consumption and housing sectors. However, growth is estimated to lose momentum again in 2028 as a shrinking workforce and weakening potential growth increasingly limit production.

POLITICAL PRESSURE ON THE ECONOMY CONTINUES

Despite the upward revision in the growth forecast, the recovery in the German economy remains limited, coinciding with a period when economic reform pressure on the government of Prime Minister Friedrich Merz continues.

Concerns about the cost of living and employment security were among the topics on the voters' agenda in the last state elections.

Joint economic forecasts prepared for the German Ministry of Economy are prepared twice a year by DIW Berlin, Ifo Institute, Kiel Institute for World Economy, IWH and Essen-based RWI.