Key facts
- DIW Berlin has raised its economic growth forecasts for Germany.
- The institute now expects 1.2% growth in 2026, up from 0.5%.
- Growth is projected at 1.0% in 2027 and 0.7% in 2028.
- Stronger exports and a less severe energy price shock are credited for the improved outlook.
- DIW cautioned that the recovery remains fragile, citing high gas prices and weak household demand.
The German Institute for Economic Research (DIW Berlin) has significantly upgraded its economic growth forecasts for Europe's largest economy. The institute now anticipates Germany's economy to grow by 1.2% in 2026, a substantial increase from its prior projection of 0.5%. Further expansions of 1.0% in 2027 and 0.7% in 2028 are also expected.
DIW attributed the improved outlook to stronger-than-expected exports and a less severe energy price shock, partly influenced by the situation in the Middle East. Despite facing challenges such as higher prices due to the Iran conflict and uncertainty from U.S. tariffs, the German economy demonstrated resilience, growing by 0.3% in the second quarter.
However, DIW cautioned that the recovery remains fragile. High gas prices, weak household demand, and structural issues within the industrial sector are expected to dampen momentum in the latter half of the year. Economic output is forecast to stagnate in the third quarter, with low water levels on key waterways and elevated energy costs impacting energy-intensive industries like chemicals and metals.
DIW noted that public consumption and investment are projected to account for approximately 70% of this year's growth, supported by spending on infrastructure, climate initiatives, and defense. This investment surge has been facilitated by a special €500 billion infrastructure fund and exemptions from debt rules for defense spending.
Looking ahead, DIW announced it will incorporate the economic effects of hybrid attacks into its future forecasts. This decision comes amid growing concerns over threats to critical infrastructure, including a recent incident involving the power grid in Brandenburg and an attempted drone attack at Leipzig/Halle Airport, for which Russia has been blamed.