More demand due to the AI boom, initial progress in structural reforms - the OECD sees Germany's economy on the right track and expects growth of 1.1 percent. This means the organization's prospects are more positive than they were in June.
The OECD sees the German economy's prospects for growth this year as a result of the ongoing AI export boom as more positive than ever before. Gross domestic product will grow by 1.1 percent, the Paris-based Organization for Economic Co-operation and Development (OECD) predicted in its latest forecast. In June, only an increase of 0.7 percent was expected. The forecast for 2027 was also left at 1.1 percent.
“Exports rose surprisingly sharply in the first half of 2026, which is due, among other things, to the increasing demand for electronic products and equipment in the wake of the AI boom,” said OECD expert Robert Grundke about the more optimistic outlook. This demand for German products for investments in artificial intelligence (AI) infrastructure is likely to remain high. “Increasing public investments in defense and infrastructure have also contributed to the economic recovery,” added Grundke.
The OECD also referred to reforms in the area of public procurement and the acceleration of planning and approval procedures for infrastructure projects. This means there are good opportunities for a faster expansion of the public infrastructure and greater support for growth.
“Even if the economic outlook has improved, it is important to push forward the necessary structural reforms in order to improve the long-term growth potential of the German economy,” warned Grundke. Barriers to competition should be reduced and the high administrative burden further reduced in order to make it easier for new companies and investments to enter the market. Existing regulations and administrative procedures would need to be reviewed, simplified and harmonized. Restrictions such as the requirement for master craftsmen in many trades should be reduced and the digitalization of public administration accelerated.
Upswing fraught with uncertainty
The OECD also advises improving incentives in the tax and transfer system. This included a reform of spousal splitting, a restriction of mini-jobs to students and pupils and the implementation of the planned welfare state reform. “From the OECD’s perspective, a reduction in the tax burden on labor income would be another important measure to increase the labor supply and alleviate the shortage of skilled workers,” emphasized Grundke. This could be financed by eliminating tax breaks and exemptions.
OECD expert Isabell Koske also warns of risks to the upswing. "A longer duration or further escalation of the conflict in the Middle East would lead to higher energy prices and greater price inflation as well as a loss of confidence, which would weigh on private consumption and investments," she emphasized. "This is all the more true as the gas storage levels in Germany and Europe are below the average of the last two years." Falling profit expectations in the AI industry could lead to falling stock prices, weaker consumer and investor confidence and lower export demand, Koske said.
The OECD expects the global economy to grow by 2.9 and 3.0 percent in 2026 and 2027. Last year there was an increase of 3.4 percent. High investments in AI infrastructure - from data centers to semiconductors - are therefore an important economic support this year. Higher interest rates and weaker purchasing power as a result of the sharp rise in energy prices caused by the Iran war are putting the brakes on this.
Growth of 2.2 and 2.1 percent is expected for the USA and 1.0 percent for the euro zone. In China, growth is likely to slow to 4.5 and 4.2 percent. In particular, the global outlook could be clouded by possible turbulence in energy markets, extreme weather events related to the El Niño weather phenomenon, rising government bond yields and disappointing returns from AI investments, the OECD warned.
