Germany’s economy is expected to see modest growth in the coming years, according to new projections from KfW Research. The organization’s economists forecast a slight expansion of 0.2% for Germany’s gross domestic product (GDP) in 2025, following two consecutive years of recession. Growth is predicted to accelerate to 1.5% in 2026.
Recent data show that Germany’s GDP stagnated during the third quarter of 2025, and leading indicators do not yet suggest a clear recovery. However, KfW Research anticipates some improvement by the end of the year.
Dr Dirk Schumacher, Chief Economist of KfW, commented on the outlook: “Although the US protectionism and the losses in competitiveness experienced in recent years are weighing on the growth outlook, the planned massive increase in public-sector expenditure offers good prospects for domestic demand.”
He added: “We expect gross domestic product to expand at a rather leisurely pace at the beginning of the year 2026 before gathering steam in the second half of the year. The planned public-sector investment and defence expenditure should then get underway and lead to accelerated growth.” According to KfW Research, business investment is also expected to pick up as capacity utilization rises, with public contracts for defense and construction sectors playing an important role.
KfW Research notes that part of next year’s projected GDP growth can be attributed to an unusually high number of working days—a calendar effect they estimate will add about 0.3 percentage points.
Inflation has risen slightly since summer due largely to continued price increases in services. As a result, KfW Research has adjusted its inflation forecast for Germany in 2025 upward by 0.1 percentage points to 2.2%. The forecast for 2026 remains at 2%. Inflation is expected to fall below 2% early in 2026 before rising again later.
For the broader euro area, KfW Research has revised its outlook upward as well. The region’s GDP growth forecast for 2025 now stands at 1.4%, reflecting stronger-than-expected performance—particularly France's solid third-quarter growth of 0.5%. For 2026, euro area growth is expected at 1.3%, with household consumption anticipated as a key driver due to positive real wage trends.