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German economy is recovering: optimistic forecasts for 2026!
The German economy is showing initial signs of recovery with optimistic forecasts for 2025 and 2026, driven by a growth package.
German economy is recovering: optimistic forecasts for 2026!
The German economy is optimistic and expects a positive recovery after facing a crisis in the last three years. According to the Ifo Institute, gross domestic product (GDP) growth of 1.5% is forecast for 2026, which is almost twice as high as the original assumption of 0.8%. This positive development is partly due to the new federal government and its growth package, which includes several key elements.
The growth package envisages higher government spending, investments and tax relief, which is estimated to have a stimulus effect of 10 billion euros for 2025 and 57 billion euros for 2026 verkehrsrundschau.de reported.
Economic development and forecasts
For 2025, the GDP expectation was raised from 0.2% to 0.3%. In the first quarter of 2025, the German economy already recorded growth of 0.4%, due to early exports to the USA, increasing private consumption and growing investments. The positive development of domestic consumption and higher business investment are seen as the main factors for this growth.
However, the forecast remains subject to the proviso that political developments, particularly in the USA, do not have a negative impact on the economy. Trade disputes and possible tariff increases could dampen GDP growth by 0.3 percentage points in 2026. However, an agreement in the trade dispute could strengthen the economic situation, especially in the logistics sector swp.de highlights.
Inflation and unemployment
The inflation rate is forecast at 2.1% for 2025 and 2.0% for 2026. In addition, the unemployment rate is expected to fall to 6.1% in 2026, compared to 6.3% in 2025. The Ifo economic director Timo Wollmershäuser emphasizes that the low point of the crisis has been overcome in the winter half of the year.
Overall, the upswing is being driven by the domestic economy, which is underpinned by the increase in private consumption and investments in industry and infrastructure. The Institute for the World Economy (IfW) in Kiel also speaks of similar growth and forecasts GDP growth of 1.6% for 2026 and 0.3% for 2025.