Key facts
- Germany's economy is forecast to grow by nearly 1.2% in 2026.
- The German Economic Institute (IW) tripled its 2026 growth forecast from 0.4% to 1.2%.
- Stronger exports and government spending are cited as key drivers for the improved outlook.
- IW warned that high energy prices, weak private investment, and job losses could slow growth in the latter half of 2026.
- Private consumption is expected to increase by only 0.3% in 2026 due to inflation exceeding 2.5%.
Germany's economic outlook for 2026 has been significantly brightened, with the German Economic Institute (IW) nearly tripling its growth forecast to 1.2%. This upward revision, published on Sunday and seen by Reuters, reflects a stronger-than-expected first half of the year, bolstered by robust exports and government spending. Other prominent economic institutes, including Ifo, DIW, RWI, and IMK, have also recently increased their projections for the German economy.
However, IW cautioned that this positive momentum is likely to wane in the second half of 2026. Factors such as high energy prices, subdued private investment, and anticipated job losses are expected to dampen demand. The institute projects slower growth of nearly 1% for 2027, with consumption and investment each contributing approximately half of the expansion.
Real exports are forecast to rise by 2.8% this year, following a notable increase in the second quarter, partly due to inventory adjustments. Nevertheless, IW highlighted that this export boost may be temporary, with persistent structural challenges including high production costs, protectionist trade policies, and competition from China remaining significant headwinds. Private consumption is expected to see only a modest increase of 0.3% in 2026, as inflation rates above 2.5% are anticipated to erode purchasing power.