Ifo Institute lifts German growth forecasts

3rd Sep 2026 13:33

(Sharecast News) - The Ifo Institute lifted its growth forecasts for the German economy on Thursday as it said sentiment has "noticeably brightened" in recent months.

The think tank now expects growth of 1.4% in 2026, 1.2% in 2027 and 0.8% in 2028, having previously forecast growth of 0.8% this year and the next.

The institute said expansionary fiscal policy will boost the economy throughout the forecast period. Additional government spending on infrastructure, climate neutrality, and defence is increasing public consumer and investment spending, it said. Fiscal stimulus measures total just under €40bn this year, while over the next two years, they are expected to come to €27bn and €18bn, respectively.

"The German economy continued to recover in summer 2026," the think tank said. "Expansionary fiscal policy in Germany and growing impetus from abroad prevented a more severe economic slowdown due to the energy price shock. Value added increased particularly in the manufacturing sector and among business-related service providers."

However, it also pointed out that "new economic upsets" have emerged since July, with energy prices rising again after the ceasefire between the US and Iran ended. "At the same time, rivers in Germany reached record low levels, which is likely to result in production disruptions in economic sectors that are especially dependent on waterways," it said.

"Despite renewed upsets, sentiment in Germany has noticeably brightened in recent months. There are rays of hope, particularly in the industry sector: The order situation has steadily improved since the start of the year, and export expectations have recently risen significantly. Against the backdrop of a robust global economy, value added in the manufacturing sector and exports are also expected to contribute to the economic recovery in the remainder of the forecast period."