The ifo Institute has raised its 2026 growth forecast for Germany to 1.4 percent.

The ifo Institute now expects German GDP to grow 1.4 percent in 2026, 1.2 percent in 2027 and 0.8 percent in 2028. Stronger foreign demand and higher state spending on infrastructure, climate and defense drive the upgrade.

The ifo Institute now projects German GDP growth of 1.4 percent for the current year, followed by 1.2 percent in 2027 and 0.8 percent in 2028. Compared with its previous forecast, the institute raised the 2026 figure by 0.6 percentage points and the 2027 figure by 0.4 percentage points. The revision reflects both updated data from the federal statistics office and a fresh reading of the underlying economic momentum.

According to chief economist Timo Wollmershaeuser, strong foreign demand and higher spending on infrastructure, climate and defense are outweighing the drag from the energy price shock and low water levels on German rivers. Inflation is expected to reach 2.8 percent in 2026 and 3.0 percent in 2027, before easing to 2.3 percent in 2028. At the same time, the expansive fiscal policy is set to widen the budget deficit from 3.0 percent of GDP in 2025 to 4.6 percent in 2028, while the debt ratio climbs from 62.7 to 67.9 percent.

It remains unclear how long the strongly expansive fiscal policy can continue given the rising debt ratio, and how much longer high inflation will weigh on private consumption. Wollmershaeuser describes the German economy as continuing its recovery, but also warns of rising electricity and gas prices this winter that could put renewed pressure on consumer prices.

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