KfW Research has raised its economic growth forecast for Germany, projecting a 1.5 percent increase in real gross domestic product (GDP) for 2026. This is an upward revision of 0.5 percentage points from previous estimates. The organization also adjusted its outlook for 2025, now expecting GDP growth of 0.2 percent instead of zero.
The revision comes as the German government plans to implement a more expansionary fiscal policy this year than previously anticipated. The government's investment package is expected to have an immediate effect on the economy, providing stimulus already in the fourth quarter of this year.
"Towards the end of the year, tailwinds should predominate for the German economy. The Federal Government’s investment initiative can be expected to provide a first economic boost already in the fourth quarter," said Dr Dirk Schumacher, Chief Economist of KfW. "Signs of increasing credit demand from businesses and households also indicate growing private investment activity. Businesses appear to be coping quite well with the significant US tariff increases imposed since the spring of 2025."
Growth in the euro area has also been revised upwards by KfW Research following stronger-than-expected performance at the start of this year. The forecast for euro area growth in 2025 was increased by 0.4 percentage points to 1.2 percent, while growth for 2026 is now expected at 1.1 percent.
Inflation projections remain unchanged by KfW Research, which continues to expect consumer prices in Germany to rise by 2.1 percent in 2025 and by 2 percent in 2026 based on the Harmonised Index of Consumer Prices (HICP).
"After the past price shock, inflation in Germany is now back under control," said Dr Dirk Schumacher.
In terms of risks, KfW Research noted that uncertainties related to US trade policy and how effectively Germany's investment package will be implemented could influence both German and European economic development.