Economists forecast German economy to grow by 1.3% in 2026 — Deutsche Welle

Germany’s leading economic institutes forecast that the country’s economy will grow by 1.3% in 2026 and by 1.1% in 2027. This is significantly higher than the estimates published in spring, Deutsche Welle reports.

Economists link the improved forecast to the resilience of the global economy, which supports German exports, as well as to the global artificial intelligence boom. According to Oliver Holtemöller of the Leibniz Institute for Economic Research Halle, the construction of AI data centers is increasing demand for German equipment for energy production and for information and communication services.

An additional factor has been government spending on the modernization of infrastructure and the Bundeswehr. It supports company orders and employment, while investment in roads, railways, digital networks and military equipment is expected to strengthen the country’s competitiveness.

Outlook remains limited

At the same time, the institutes do not consider the current recovery to be the beginning of a new economic boom. For 2028, they expect growth to slow to 0.4%. The restraining factors cited include high energy prices, a shortage of skilled workers, an aging population and insufficient private investment in previous years.

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Additional budget expenditure is financed through debt. According to forecasts, the government budget deficit will rise from 4.1% of GDP this year to 4.7% of GDP in 2028. At the same time, debt servicing costs will increase, limiting the capacity of future budgets.

Labor shortage and industrial problems

Economists call the reduction in the labor force caused by the retirement of the baby boomer generation Germany’s biggest challenge. They call for greater openness to labor immigration and propose abolishing the option of early retirement after 45 years of contributions without a reduction in benefits.

The country’s industrial sector continues to shrink: around 15,000 industrial jobs are lost every month, including in the automotive industry, mechanical engineering and metallurgy. At the same time, many startups in digitalization and AI have emerged over the past two years, but they lack funding. Economists also criticize the fuel tax cut planned for October 1, considering it financially unjustified and one that weakens incentives to reduce energy demand.