German institutes raise 2026 and 2027 economic growth forecasts

By Maria Martinez

BERLIN, Sept 24 (Reuters) – Germany’s leading economic institutes raised their forecasts for growth in Europe’s largest economy for this year and next on Thursday, noting that the economy performed significantly better in ​the first half of 2026 than had been expected in the ‌spring.

The German economy is forecast to grow 1.3% in 2026, compared with an earlier forecast of 0.6%. For 2027, the institutes forecast growth of 1.1%, up from an earlier projection of 0.9%.

The numbers confirm a Reuters report from Tuesday.

“The economy has developed more robustly than expected. ‌However, ​the recovery rests on a narrow foundation, as ⁠high energy prices and struc­tural ⁠problems continue to weigh on economic activity,” said Oliver Holtemoeller at the Halle Institute for Economic Research (IWH).

The German economy has been recovering since the end of 2025 but the rebound, although stronger than expected in the spring, ​remains modest, the institutes said.

The institutes expect growth of only 0.4% in 2028.

Economic expansion is expected to lose momentum in 2028 as it will be ⁠constrained by structural factors: the labour force is ⁠shrinking due to demographic change, and potential growth continues to ​decline, the economists said.

Germany’s sluggish economy has been a big issue in the ​country’s recent regional elections that have resulted in big gains for ‌the far right and far left.

Economic recovery temporarily slowed in the third quarter, the institutes said. While sentiment indicators continue to improve, the latest hard economic data have come in weaker.

Although the energy price shock associated with the Iran war ⁠has weighed on the economy, higher prices for motor fuels and heating oil have so far had little spillover effect on broader con­sumer prices, the economists said.

However, the ⁠institutes forecast inflation rising ‌to 2.8% in 2026 and 3.2% in 2027, before ⁠falling to 2.0% in 2028.

The labour market is likely to ​respond ‌only with a lag: employment is expected to decline further ​for the ⁠time being, while the unemployment rate is expected to fall from 6.4% in 2026 to 6.2% in 2027 and 5.8% in 2028.

The forecasts are made jointly by five prominent economic institutes – RWI in Essen, the Ifo institute in Munich, IfW in Kiel, IWH in Halle and DIW in Berlin.

(Reporting by Maria MartinezEditing by Ludwig ​Burger and Susan Fenton)