Economic institutes in Germany have revised their projections for the growth of the country’s economy, forecasting an increase of 1.3% in 2026, nearly double the earlier estimate of 0.6%. For 2027, growth is anticipated at 1.1%, up from 0.9% previously predicted, according to reports from Reuters and Deutsche Welle.
Oliver Holtemoeller from the Halle Institute for Economic Research (IWH) commented, “The economy has developed more robustly than expected. However, the recovery is based on a fragile foundation, as high energy prices and structural issues continue to impact economic activity.”
Economic Growth Projected to Slow by 2028
The German economy is recovering from the end of 2025, though the rebound, while stronger than anticipated earlier this spring, remains modest. The forecast indicates only a 0.4% growth rate for 2028.
Economic growth is expected to lose momentum by 2028, constrained by structural factors such as a shrinking workforce due to demographic changes and declining potential growth, economists have stated.
Economic Concerns Fuel Extremist Gains
The stagnant economy has been a significant issue in recent local elections, resulting in substantial gains for far-right and far-left parties. The economic recovery temporarily slowed in the third quarter, though confidence indicators continue to show improvement, recent concrete economic data has been weaker.
While the energy price shock linked to the conflict in Iran has impacted the economy, higher fuel and heating oil prices have not significantly propagated through to overall consumer prices, economists noted.
The institutes project inflation to rise to 2.8% in 2026 and 3.2% in 2027, before decreasing to 2.0% in 2028. The labor market is likely to respond with a lag, with employment expected to continue to decline for the time being, while the unemployment rate is projected to fall from 6.4% in 2026 to 6.2% in 2027, and further to 5.8% in 2028.
Unpredictable Factors Ahead
The forecasts have been produced collaboratively by five renowned economic institutes: RWI in Essen, Ifo Institute in Munich, IfW in Kiel, IWH in Halle, and DIW in Berlin.
Other organizations, including the Organisation for Economic Co-operation and Development (OECD), have also made positive projections, estimating a 1.1% growth in Germany’s GDP for this year, revised up from 0.7% in June. The OECD similarly expects a 1.1% rise in 2027.
A common point of concern among observers is the pressing need for urgent long-term reforms, particularly in light of the ongoing conflict between the USA, Israel, and Iran, which poses significant unpredictability for the global economy.
Despite the cautious optimism expressed in Thursday’s report, many economists warned that increased government spending on infrastructure and defense—largely financed through new loans—could quickly become unsustainable without accompanying durable reforms. Chancellor Friedrich Merz, determined to push these reforms in the Bundestag, has also recently expressed optimism about Germany’s economic future, stating, “We have emerged from the valley of recession or economic decline.”
