BERLIN — The German Institute for Economic Research (DIW Berlin) announced on Wednesday that it now expects Germany’s gross domestic product to expand by 1.2% in 2026, more than double its prior 0.5% projection. The upward revision reflects a stronger‑than‑expected export performance and a less severe energy‑price shock stemming from the ongoing Iran conflict.
Export gains and public‑sector stimulus
DIW’s forecast for 2027 and 2028 also improved, with growth now seen at 1.0% and 0.7% respectively. “The German economy is recovering somewhat better this year than expected, but it is still standing on rather shaky ground,” said Geraldine Dany‑Knedlik, head of economic forecasting at DIW. Nevertheless, the institute highlighted that public consumption and investment will account for roughly 70% of this year’s growth, buoyed by a special €500 billion infrastructure fund and an exemption from debt rules for defence spending approved last year.
Fragile recovery amid lingering challenges
Despite the positive outlook, DIW warned that the recovery remains fragile. High gas prices, weak household demand and structural problems in industry could curb momentum in the second half of the year. Economic output is expected to stagnate in the third quarter as low water levels on key waterways and elevated energy costs weigh on energy‑intensive sectors such as chemicals and metals.
Hybrid threats on the agenda
Looking ahead, DIW Berlin said future forecasts will begin to assess the economic impact of hybrid attacks on German infrastructure. Recent sabotage of power lines in Brandenburg and a suspected Russian drone attempt at Leipzig/Halle Airport have underscored the growing security risk. “This is certainly an important aspect for forecasts in the coming years, assuming the situation does not change,” Dany‑Knedlik added.
What this means for German families and businesses
For local families and small businesses, the revised growth outlook suggests a modest improvement in job prospects and consumer confidence, especially in regions benefiting from the infrastructure and defence spending boost. However, households should remain cautious as energy costs stay elevated and supply‑chain disruptions could still affect everyday prices.
Looking forward
DIW President Marcel Fratzscher called the outlook a potential turning point: “The German economy could be at a turning point towards stronger growth over the next two years. At present, however, economic momentum is mainly due to the public sector.” Policymakers will need to balance continued public investment with measures that strengthen private‑sector resilience, ensuring that the modest growth translates into lasting prosperity for German citizens.
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
