German Economic Institute Lifts 2026 Growth Forecast to Nearly 1.2%

Germany's economy is expected to expand by nearly 1.2% in 2026, according to fresh projections from the German Economic Institute (IW), a sharp upward revision from the 0.4% growth it had pencilled in just months earlier.

The improved outlook rests on stronger exports and government spending during the first half of the year, the institute said. Other leading German economic research bodies — Ifo, DIW, RWI and IMK — have likewise raised their forecasts after activity in the opening six months of the year came in ahead of expectations.

However, IW cautioned that the momentum is unlikely to hold. It expects growth to lose steam in the second half as elevated energy prices, subdued private investment and job losses weigh on demand.

For 2027, the institute projects growth of nearly 1%, with household consumption and investment each contributing roughly half of the expansion.

On trade, IW expects real exports to grow 2.8% this year and imports 2%, following a sharp rise in goods exports in the second quarter that was partly driven by inventory effects. It warned that this export boost is likely to prove temporary, with structural pressures — including high production costs, protectionism and competition from China — continuing to bear down on the economy.

Private consumption is forecast to rise by only 0.3% in 2026, as inflation running above 2.5% erodes households' purchasing power.