Germany’s Economy Set to Grow 1.4% This Year, ifo Institute Predicts

Germany’s economy may finally be turning a corner after years of stagnation.

Europe’s largest economy is expected to grow by 1.4 percent this year, economic think tank the ifo Institute said on Thursday, raising its previous forecast by 0.6 percentage points.

The institute forecast growth of 1.2 percent in 2027 and 0.8 percent in 2028. It said stronger overseas demand and higher German government spending on infrastructure, climate measures and defense would help offset the impact of an energy price shock and low water levels in the country’s rivers following this year's scorching weather.

“The recovery of the German economy is continuing,” said Timo Wollmershäuser, ifo’s head of economic forecasts. He pointed to signs of improvement, particularly in the crisis-hit industrial sector.

The forecast is more optimistic than an assessment by Bundesbank President Joachim Nagel, who said in an interview published by Le Monde on Wednesday that Germany was on track to grow by around 1 percent this year — twice the Bundesbank’s June forecast of 0.5 percent.

Ifo also raised its 2027 growth forecast by 0.4 percentage points. The revisions reflect updated historical data from Germany’s Federal Statistical Office and a more positive assessment of the economy’s underlying momentum.

Inflation is expected to reach 2.8 percent this year and 3 percent next year before easing to 2.3 percent in 2028, bringing it closer to the European Central Bank’s target.