BVR doubles growth forecast for German economy

The German economy has barely gotten off the ground for years. But after the long period of weakness, the Volksbanken see a light at the end of the tunnel. GDP could grow significantly faster than previously expected.

The Federal Association of German Volksbanks and Raiffeisenbanks (BVR) is becoming significantly more optimistic about the German economy and is doubling its growth forecast. He now expects a price-adjusted increase in gross domestic product of 1.0 percent this year instead of the previous 0.5 percent. He continues to expect growth of 1.3 percent for 2027.

“The low water in the Rhine and the heat wave are only temporarily slowing the economic recovery,” says BVR chief economist Andreas Bley. "In recent months, there have been increasing signs of an economic recovery after several years of weakness." The German economy has been growing for three quarters in a row. In addition, leading indicators brightened.

Chief economist Bley points to a gradual recovery in industry, more dynamism in the construction sector and strong exports, which reached a record level in June. Government spending on defense, infrastructure and climate protection is also likely to give the economy additional growth impetus.

There will likely be a short pause in growth in the third quarter due to low water, says Bley. However, the economic damage should remain limited in time. If the water levels normalize in the coming weeks, the economy should grow slightly again in the fourth quarter.

At the same time, the BVR expects increased prices for consumers: It forecasts the inflation rate to remain at 2.8 percent this year and 2.5 percent in 2027. Inflation could temporarily rise above the three percent mark again, especially due to higher energy and transport costs.