The outlook for Germany, Europe’s largest economy, is brightening after years of stagnation, with leading forecasters upgrading growth projections for 2026 through 2028.
The German Institute for Economic Research (DIW) now expects gross domestic product to expand 1.2% in 2026, 1.0% in 2027 and 0.7% in 2028, more than doubling its June estimate of 0.5% for 2026. The revision reflects stronger-than-anticipated exports and a milder-than-feared energy price shock linked to the conflict in Iran, DIW President Marcel Fratzscher said. Public consumption and investment account for roughly 70% of this year’s growth, driven by higher outlays on health, long-term care, pensions, infrastructure and defense.
The Bundesbank similarly upgraded its 2026 forecast, projecting growth of 1.0% on the back of solid first-half performance. The central bank now expects calendar- and price-adjusted expansion of about 1.0% in 2024, up from a June call of 0.5%, citing robust export figures and improving industrial order intake. German GDP rose 0.4% in the first quarter and 0.3% in the second, while exports hit record levels in June.
Despite the improved momentum, risks remain. The DIW cautioned that private investment remains insufficient to sustainably bolster Germany’s competitiveness and innovation capacity. Global uncertainties, including potential escalation in the Middle East or new trade disputes, could derail the recovery. The institute forecasts stagnation in the third quarter due to elevated energy costs and low water levels disrupting chemical and metals production, with high gas prices posing a persistent winter risk.
DIW economists described the rebound as fragile but noted growing signs of cautious optimism. The Ifo Business Climate Index has risen for four consecutive months, though the recovery’s durability depends on sustained demand and policy support.
Separately, Bundesbank President Joachim Nagel warned against populist proposals to abandon the euro, calling such steps “extremely dangerous” and counterproductive. German prosperity, he argued, is tied to the single currency, as it has been for France and the broader monetary union. Deutsche Bank CEO Christian Sewing echoed the sentiment, criticizing protectionist and nationalist rhetoric ahead of regional elections. He described such policies as antithetical to Germany’s foundations of openness, diversity and international cooperation, and warned they would exacerbate structural challenges without addressing underlying issues.
