Ifo Institute: German economy to grow strongly in 2026

Munich. According to the new economic forecast from the Ifo Institute, the German economy will overcome its three-year-long ongoing crisis by 2026. The Munich-based economic researchers have significantly raised their economic forecast for the coming year: Gross domestic product could grow by 1.5 percent, almost twice the originally forecast 0.8 percent. Ifo Economic Director Timo Wollmershäuser and his colleagues also slightly raised their forecast for this year from 0.2 to 0.3 percent. "The crisis in the German economy reached its lowest point in the winter half of the year," said Wollmershäuser.

One reason for the expected boost is the growth package announced by the new federal government. The Munich-based economists estimate the economic impact of the announced spending increases, tax cuts, and investments at €10 billion this year and €57 billion next year.

However, the increased forecast is based in large part on the assumption that the trade conflict with the EU, instigated by the US government, will come to a positive conclusion. "The growing optimism is probably also fueled by the hope that the new coalition will end the economic deadlock and that an agreement will be reached in the trade dispute with the US," Wollmershäuser said of the companies' expectations. Economic output had already grown strongly by 0.4 percent in the first quarter of 2025, primarily due to forward exports to the US, but also due to higher private consumption and increased investment.

Since the European trade conflict with the United States has not yet been resolved, economic researchers see continued risks in US trade policy. According to Ifo, the import tariffs already increased by US President Donald Trump at their current level would reduce German economic growth by 0.1 percentage points this year and by 0.3 percentage points in 2026. A settlement in the trade conflict could result in higher growth, but an escalation could threaten a renewed recession.

The institute does not expect a renewed rise in the inflation rate: According to the forecast, inflation is expected to be 2.1 percent this year and 2.0 percent in 2026. The unemployment rate could also fall slightly again in 2026. The Ifo economists expect it to reach 6.3 percent this year and 6.1 percent next year.

The Kiel Institute for the World Economy (IfW) raised its forecast for the coming year by one-tenth of a percentage point to 1.6 percent. For the current year, the economists also raised their forecast from 0.0 to 0.3 percent. "The leading indicators confirm our assessment that, after a two-year decline, industry has now found its bottom – at a low level," explained IfW Economic Director Stefan Kooths.

The reason for this development can be found primarily in the domestic economy. "Private consumption is increasing noticeably again after a two-year dry spell, and corporate investment is also gradually turning positive."

RND/dpa