Germany Faces Years of Weak Growth

The Kiel Institute for the World Economy has raised its forecast for German economic growth this year from 0.8% to 1.3%, saying the economy has overcome its deepest slump and is regaining momentum.

The institute pointed to accelerating economic activity and improving business sentiment despite geopolitical pressures. However, it warned that the recovery remains fragile, with risks including the war in Iran and the expected fading of fiscal stimulus in the coming years.

The institute left its 2027 growth forecast unchanged at 1%, while predicting growth of just 0.5% in 2028.

Germany’s recent economic weakness has been driven largely by structural problems that are expected to continue weighing on growth. Exports are forecast to recover after sharp declines, but deteriorating competitiveness is likely to result in further losses in global market share. Private investment is also expected to remain subdued because of unfavorable business conditions.

The Ifo Institute also revised its forecasts upward on Thursday, citing stronger government spending, rising industrial orders and export demand. It said these factors should outweigh the impact of higher energy prices.

Ifo now expects Germany’s gross domestic product to grow by 1.4% in 2026 and 1.2% in 2027, up from its previous forecasts of 0.8% for both years. Growth is expected to slow to 0.8% in 2028.

(Reuters, bak, sak)