Germany's IfW Institute Boosts 2026 GDP Forecast to 1.3% on Recovery Signs

Germany's IfW economic institute on Thursday significantly raised its 2026 growth forecast for Europe's largest economy, now projecting gross domestic product to expand by 1.3%. The revision from a previous estimate of 0.8% reflects improving business sentiment and signs that the economy has moved past its recent downturn.

Upgraded Outlook

The Kiel Institute for the World Economy (IfW) attributed the more optimistic outlook to a "noticeable acceleration in economic activity." According to its report, the German economy has "passed the low point of its downturn and is regaining momentum."

While raising the 2026 forecast, the institute kept its 2027 growth projection unchanged at 1.0%. Looking further ahead, the IfW expects economic growth to slow to 0.5% in 2028.

Recovery on 'Shaky Ground'

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Despite the improved near-term forecast, the IfW cautioned that the recovery remains on "shaky ground" and is subject to several persistent headwinds. The institute warned that structural factors that have driven Germany's weak performance in recent years will continue to weigh on activity.

Key challenges identified in the forecast include:

• The fading impact of fiscal stimulus in the coming years.
• Deteriorating competitiveness, which is expected to lead to further losses in global export market share.
• Subdued private investment activity due to ongoing challenges for Germany as a business location.
• Geopolitical risks, with the report citing the "Iran war" as a specific concern.

For investors, the upgraded forecast offers a positive signal about the health of the eurozone's core economy. However, the institute's warnings about long-term structural issues suggest that underlying vulnerabilities persist, potentially tempering market optimism.