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Upswing in sight: German economy could grow again in 2026!
The German economy is showing signs of recovery by 2026, despite challenges such as trade conflicts and demographic changes.
Upswing in sight: German economy could grow again in 2026!
The German economy is showing signs of recovery after enduring its longest crisis since 1949. According to a recent report by Capital Economic growth could increase again in 2026. Four economic research institutes have raised their growth forecasts for this year, indicating a positive trend.
The adjusted forecasts are as follows:
- Ifo-Institut: +1,5% (ursprünglich 0,8%)
- IfW Kiel: +1,6%
- RWI Essen: +1,5%
- IWH Halle: +1,1%
However, only minimal growth is expected for 2025. Ifo economics chief Wollmershäuser emphasizes that the crisis reached its lowest point in the winter half of the year. Despite positive signs, it is suspected that economic output could contract further in 2023 and 2024, with Ifo increasing its forecast for 2023 from 0.2% to 0.3% and IWH from 0.1% to 0.4%.
Policies and challenges
A growth package from the federal government worth 10 billion euros for the current year and 57 billion euros for next year is intended to support the economic recovery. However, RWI economic director Schmidt makes it clear that these announcements must be followed by action in order to achieve the desired effect. However, the long-term outlook for the German economy remains bleak, according to Ifo, with average growth of less than 0.5% by the end of the decade.
A key point is the demographic transition, which will lead to a decline in the potential workforce from 2025 onwards. The OECD strongly recommends improving the integration of women and older people into the labor market. Federal Minister of Economics Katherina Reiche is also calling for reforms in the pension and healthcare systems.
Economic risks and uncertainties
The positive economic forecasts are also based on the hope that the trade conflict between the USA and the EU will be resolved. However, IWH Vice President Holtemöller warns of potential risks such as an escalation of US trade conflicts. These could reduce German economic growth by 0.3 percentage points in 2026. The inflation rate is forecast at 2.1% for 2023 and 2.0% for 2026.
In summary, despite the challenges, there are positive signs of economic stabilization. As well as South Germans reports, the new federal government's measures to extensively expand state investments and gradually reduce the tax burden on companies could be crucial for the recovery. Real gross domestic product could increase again in 2023 for the first time since 2022, which gives hope for an early recovery.