ifo Institute Raises Growth Forecast for Germany to 1.4 Percent for 2026

In its latest forecast, the ifo Institute projects growth of 1.4 percent in gross domestic product (GDP) for this year. The economic experts expect growth of 1.2 percent for 2027, and 0.8 percent for 2028. “Significant impetus from abroad and increased spending on infrastructure, climate, and defense in Germany are preventing a more severe economic slowdown due to the energy price shock and low water levels in rivers. There are rays of hope, especially for the crisis-stricken industry sector,” says Timo Wollmershäuser, Head of Forecasts at ifo. “The German economy is continuing to recover.”

Compared to the previous forecast, the ifo Institute has raised the growth rate for this year by 0.6 percentage points and 0.4 percentage points for next year. A revision of past data by Germany’s Federal Statistical Office and a reassessment of the underlying economic dynamic in Germany contributed to that. In the current forecast, primarily the economic driving forces – in other words, the stimulus from fiscal policy and from abroad – are assessed as stronger, while the dampening effects of the energy price shock are assessed as weaker.

The expansionary fiscal policy is causing the government’s financing deficits to swell strongly. The budget deficit is expected to increase from 3.0 percent of GDP in 2025 to 4.6 percent in 2028. In the same period, gross debt is expected to rise from 62.7 percent to 67.9 percent of economic output.

According to the forecast, the inflation rate in this year and the next will rise to 2.8 percent this year and 3.0 percent next year. Inflation is not expected to move back toward the European Central Bank’s target of 2.3 percent until 2028. “Inflation driven by heating oil and fuel is expected to decline over the remainder of the forecast period. However, consumer prices particularly for electricity and gas are likely to rise again this winter,” says Wollmershäuser, adding that, overall, consumer spending remains subdued due to high inflation.