The ifo Institute raised its economic growth forecasts for Germany in 2026 and 2027, supported by the government's "highly expansionary" fiscal policy amid the energy price shock caused by the ongoing war in the Middle East.
In its autumn economic forecast published Thursday, the research institute said it now expects the country's gross domestic product to grow 1.4% this year before easing to 1.2% in 2027.
The latest figures compare with ifo's previous GDP growth projection of 0.8% for both 2026 and 2027. For 2028, the German economy is expected to see a 0.8% expansion.
"Expansionary fiscal policy in Germany and growing impetus from abroad prevented a more severe economic slowdown due to the energy price shock. Value added increased particularly in the manufacturing sector and among business-related service providers," the ifo said. "However, new economic upsets have emerged since July. After the ceasefire in the Iran War ended, energy prices once again rose sharply. At the same time, rivers in Germany reached record low levels, which is likely to result in production disruptions in economic sectors that are especially dependent on waterways."
Meanwhile, headline inflation is now projected to reach 2.8% in 2026, before picking up to 3% in 2027, against the prior estimates of 2.9% and 2.7%, respectively. German headline inflation is then expected to slow to 2.3% in 2028.