KfW Research has updated its economic forecast for Germany, projecting a 1.0 percent growth in the gross domestic product (GDP) for 2026. This revision marks an increase of 0.7 percentage points from previous estimates.
"After a long barren spell, the adjustment to the debt brake and the investment plans of the Federal Government provide the prospect of a growth spurt next year," stated Dr. Dirk Schumacher, Chief Economist of KfW.
For 2025, KfW Research anticipates GDP stagnation despite a strong first quarter growth of 0.4 percent. The research body had earlier predicted a minor contraction of 0.2 percentage points for this year.
The economic indicators have shown variability over recent quarters, with alternating positive and negative trends persisting for over three years. KfW Research expects this pattern to continue with moderate negative growth anticipated in the current spring quarter.
"In the short term, the outlook for a sustained cyclical trend reversal is dim," added Schumacher. He attributed part of the initial quarterly growth to increased imports driven by tariff threats.
The recent rise in US tariffs since April poses challenges for businesses, with KfW Research forecasting that these will persist at a base rate of 10 percent. The possibility of further increases remains as US trade policies evolve, potentially impacting Germany's economic performance due to reduced exports and heightened uncertainty affecting investments.
Some positive factors include easing monetary policy by the European Central Bank (ECB) and real wage increases observed in 2024. However, household spending is expected to grow only moderately due to slowing wage growth and labor market challenges.
In terms of broader regional forecasts, KfW Research predicts euro area growth at 0.8 percent this year and rising to 1.0 percent in 2026. Growth disparities are noted within Europe; France and Italy may experience lower rates while Spain maintains stronger performance.
Inflation forecasts have been adjusted downward by KfW Research due to contrasting influences such as stubborn services inflation versus falling energy prices and disinflationary effects from US tariffs. For Germany, inflation is now projected at 2.1 percent this year and slightly lower at 2.0 percent next year.