BERLIN — The Macroeconomic Policy Institute (IMK) announced on Thursday that Germany’s economy is expected to grow 1.3% in 2026, more than double its earlier projection of 0.6%. The upward revision reflects a surprisingly strong export performance in the first half of the year and higher government outlays for defence and infrastructure projects.
Key drivers of the revised outlook
IMK’s Sebastian Dullien said the institute sees a “more resilient” business environment than many recent dire forecasts suggested. Export growth, particularly in high‑tech and automotive sectors, has exceeded expectations, providing a solid boost to the overall economy.
In addition, the German government has committed extra spending to modernise the armed forces and expand critical infrastructure, adding roughly 0.7 percentage points to the GDP forecast. Private consumption, however, is expected to contribute only a modest 0.1 percentage point, as households continue to feel the pinch of elevated energy costs and lingering policy uncertainty.
Future outlook and inflation expectations
The institute also lifted its 2027 growth estimate to 1.4% from 0.9%, indicating confidence that the current momentum can be sustained. Inflation is projected at 2.7% in 2026 and 2.9% in 2027, comfortably within the European Central Bank’s target range, while the unemployment rate is expected to hold steady at 6.4% for both years.
Broader context
Other leading German economic think‑tanks, including Ifo, DIW and RWI, have similarly upgraded their forecasts after observing the stronger-than‑expected first‑half performance. Their revisions underscore a growing consensus that Germany’s economy is on a steadier path than previously feared.
Despite the positive revisions, Dullien cautioned that the recovery is not yet self‑sustaining. High energy prices and lingering uncertainty over fiscal policy continue to weigh on household spending. The institute stresses the importance of continued prudent fiscal measures and a stable regulatory environment to keep the growth trajectory on track.
What this means for businesses and families
For German businesses, the improved outlook signals a more favourable climate for investment and hiring. Families can look forward to a modestly stronger job market and inflation that remains near target levels, helping to preserve purchasing power.
Overall, the IMK’s revised forecast offers a hopeful signal that Germany’s economy is regaining its footing, driven by resilient exports and decisive government investment in key sectors.
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
