Germany's Economy: Slow Recovery on the Horizon

Germany's economy, stagnant for three years, is set for a gradual recovery starting 2026, fueled by increased government spending and export growth. Wage increases and inflation adjustments are impacting future economic projections, prompting the European Central Bank to maintain its policy outlook through 2026.

Germany's economy, having experienced a prolonged period of stagnation, is expected to see only a modest recovery next year, according to forecasts released by the Bundesbank. The economic rebound is anticipated to gain momentum later, thanks to increased government spending.

In the past year, Chancellor Friedrich Merz initiated changes with new spending strategies, focusing on defense and infrastructure. This has provided a much-needed uplift to the industrial sector, along with a cautious boost in consumer confidence. Bundesbank President Joachim Nagel suggests that significant growth should be evident by the second quarter of 2026.

Projections indicate a slight increase in growth for 2025, with wage growth expected to impact inflation rates, pushing them higher than previous expectations. These economic adjustments have also influenced the European Central Bank's approach, leading to revisions in their future inflation projections for the euro zone.