Ifo Upgrades German Growth Outlook on Fiscal Push, Export Demand

Germany's Ifo economic institute has revised its growth projections upward for Europe's largest economy, citing a combination of robust fiscal spending, improving industrial orders, and steady export demand that is offsetting the drag from elevated energy prices.

The Munich-based think tank now expects German gross domestic product to expand by 1.4% in 2026 and 1.2% in 2027, a significant upgrade from its summer forecast of 0.8% for both years. Growth is projected to moderate to 0.8% in 2028.

Part of the revision stems from revised official data, which showed the economy grew by 0.3% in the second quarter of 2026—a stronger start than the stagnation Ifo had previously anticipated following an energy-price shock.

Ifo attributes the improved outlook to government spending on infrastructure, climate neutrality initiatives, and defence, which together are expected to provide fiscal stimulus worth nearly €40 billion (approximately $46.36 billion) this year, equivalent to 0.8% of GDP. Industrial production and exports are also seen supporting the recovery, helped by solid global demand, particularly within Europe.

However, the institute cautioned that higher energy prices linked to the Iran war will continue to weigh on household consumption. Inflation is forecast to reach 2.8% this year and 3.0% in 2027, before easing to 2.3% in 2028.