Germany's IfW raises 2026 growth forecast as economy regains momentum

Germany's IfW institute ​on Thursday raised its 2026 ​growth forecast for ‌Europe's largest economy ​by half a percentage point, citing growing signs that it has passed ‌the low point of its downturn and is regaining momentum. The institute now expects gross domestic product to grow by 1.3% this year, ‌up from a previous forecast of 0.8%, citing ‌a noticeable acceleration in economic activity and improving business sentiment despite geopolitical headwinds.

However, it warned that the recovery remains on shaky ground, with risks stemming ⁠from ​the Iran ⁠war and fiscal stimulus set to fade in coming years. For 2027, the ⁠institute left its previous forecast for 1.0% growth unchanged. It expects ​only 0.5% growth in 2028.

Germany's weak performance in recent ⁠years had been driven in large part by structural factors that will ⁠continue ​to weigh on activity, said the institute. While export growth is expected to resume after sharp declines in previous ⁠years, deteriorating competitiveness is likely to lead to further losses in ⁠global market ⁠share.

Given the challenges facing the business location, private investment activity is expected to remain subdued, ‌it added.