Germany: IfW Raises Growth Forecast for 2026 to 1.3%

Yesterday 07:46

After several challenging years, the German economy appears to be on the mend. The Institute for the World Economy in Kiel (IfW) raised its growth forecast for 2026 on Thursday, now predicting a 1.3% increase in gross domestic product. The institute believes that economic activity has passed the lowest point of its slowdown, while warning that the recovery remains exposed to several risks.

A More Favorable Recovery Scenario

The IfW now expects growth of 1.3% in 2026, up from 0.8% in its previous estimate. This revision of 0.5 percentage points reflects a clearer improvement in economic activity and business sentiment.

The institute estimates that several indicators show that the leading European economy is beginning to regain momentum after a prolonged period of poor performance.

This improvement comes despite a still uncertain geopolitical environment, which continues to complicate the outlook for German businesses.

A Still Fragile Upswing

While the recovery scenario is becoming clearer, the IfW calls for caution. The institute believes that the rebound remains vulnerable, particularly due to the consequences of the war in Iran and changes in budgetary policies.

Part of the support for activity provided by stimulus measures is expected to wane in the coming years. This outlook limits the possibilities for a sustainable acceleration of growth.

For 2027, the IfW thus maintains its forecast at 1%, ahead of an expected slowdown to just 0.5% in 2028.

Structural Weaknesses Persist

The economic rebound does not mean that the difficulties accumulated over the past years have disappeared.

According to the IfW, several structural factors continue to limit Germany's growth potential. The country's competitiveness remains a concern, as German companies face increased competition in international markets.

Even though exports are expected to return to growth after significant declines in previous years, the institute anticipates a continued loss of market share globally.

Private Investment Under Pressure

The state of the industrial fabric is also a point of concern.

Faced with the challenges affecting the attractiveness of German production sites, companies are expected to maintain a cautious approach to investment. The IfW thus forecasts limited private investment activity.

This weakness could weigh on Germany's ability to modernize its production apparatus and improve its position against international competitors.

Berlin Balances Hope for Recovery and Competitiveness Challenges

The IfW's new forecast offers a more encouraging signal for the eurozone's leading economy. The upward revision of growth expected in 2026 suggests that the slowdown may indeed have reached its lowest point.

However, the medium-term forecast profile highlights the limits of the rebound. With growth expected at 1% in 2027 and then 0.5% in 2028, Germany faces a fundamental challenge: to transform the current cyclical improvement into a sustainable recovery.

The competitiveness of businesses, private investment, and the ability to enhance export performance will be crucial to prevent the 2026 rebound from being just a brief interlude in a period of moderate growth.