Germany Doubles 2026 Growth Forecast to 1.3% on Manufacturing Rebound

Germany has more than doubled its growth forecast for 2026 after a stronger-than-expected first half, the Economy Ministry said in its autumn projection. Gross domestic product is now expected to expand by 1.3% in 2026, the fastest jump since 2017, and 1.1% in 2027.

That compares with previous estimates of 0.5% and 0.9%. The ministry sees growth slowing to 0.6% in 2028 as volatile geopolitics continue to drive up energy prices.

Exports, spending offset weak consumers

Robust exports and a surge in government spending outweighed weak consumer activity. The ministry said Europe's largest economy withstood the blow of war in the Middle East better than anticipated, especially in core manufacturing. Companies building inventories of German-made energy-intensive goods in response to global supply constraints gave an unexpected boost.

"The German economy is on a growth trajectory and has proven to be more resilient than expected," the ministry said in a statement on Thursday. "Future economic developments depend largely on the course of geopolitical conflicts in the Middle East and Ukraine."

The upgrade comes after the government halved its 2026 forecast in April, bracing for the impact of the US-led war on Iran and energy disruptions. In January, it had projected 1% growth.

Merz gets limited breathing room

The revised forecast offers Chancellor Friedrich Merz limited breathing room. Germany's economy has barely grown over the past three years. Pressure on his unpopular government intensified after three bruising state election defeats last month, which saw a surge in support for the far-right Alternative for Germany. Reforms needed to put the recovery on a sustainable footing have stalled after an initial push. Merz's coalition agreed in a meeting in Berlin late Wednesday to grind ahead in its effort to push through a raft of measures.

Manufacturing stabilises but risks remain

Recent data point to some stabilization in the struggling manufacturing sector. Industrial production rose 2% in August despite low water levels on the Rhine. Order books have been filling up thanks in part to Germany's rearmament.

The Economy Ministry expects momentum this year to be boosted by foreign trade, which benefited from a buildup of inventories. It added that debt-financed government spending on infrastructure and defense will continue to help in the coming years. Private consumption should remain subdued due to rising prices, while private investment is expected to recover only gradually.

A lasting solution to geopolitical crises "would accelerate the recovery," the statement said. "Conversely, persistently high commodity and energy prices could place a greater burden on businesses and households."

Germany's export-oriented industrial sector has also been struggling with trade barriers in the US and intensifying competition from China. Companies have repeatedly cited taxation, regulation, labor costs and lengthy approval procedures as obstacles to investment.

"This economic upswing comes at a high cost," said Helena Melnikov, managing director of the DIHK industry lobby group. "Without substantial economic reforms, this recovery will be short-lived."

The revised forecasts, which serve as the basis for tax estimates, are broadly in line with projections published last month by Germany's leading economic institutes.