Exclusive-German government raises growth forecasts for 2026 and 2027, source says

Germany Raises 2026-27 Economic Growth Forecasts Despite Inflation Risks

Germany's Economic Outlook and Government Response

By Holger Hansen

BERLIN, Oct 1 (Reuters) - The German government has raised its economic forecasts, a person familiar with the draft told Reuters on Thursday, as the Iran war is not hurting the economy as much as feared.

Revised Economic Growth Forecasts

The government has raised the forecast for economic growth to 1.3% in 2026 and 1.1% in 2027. It expected 0.5% growth for 2026 and 0.9% in 2027 in its April forecasts.

The new government forecasts are in line with those of Germany's leading economic institutes, which were published at the end of September.

Political Implications of Economic Performance

Any pickup would be welcomed by Chancellor Friedrich Merz after Germany's sluggish economy proved a sore point in September's regional elections that resulted in big gains for the far right and far left. 

The investment push and economic reforms announced by the ruling coalition of Social Democrats and conservatives failed to win over voters.

Long-Term Growth Projections

For 2028, the government expects growth of 0.6%.

The economy ministry will officially present the new forecasts on October 8. The ministry declined to comment.

Drivers of Economic Growth

Despite higher prices due to the Iran conflict and uncertainty caused by US tariffs, the German economy has shown resilience and grew by 0.3% in the second quarter.

Government Investments and Infrastructure

The upturn is being driven primarily by the government's debt-financed investments in infrastructure and the strengthening of Germany's armed forces. 

Export Growth Trends

Exports will also be a growth driver. According to the source, the government forecasts export growth of 3.7% this year. Growth is then expected to slow to 2.1% in 2027 and 1.1% in 2028. 

Inflation and Consumer Impact

Inflationary Pressures from Global Events

INFLATION UP

The war in the Middle East is affecting many consumers primarily through inflation, especially via sharply higher petrol and diesel prices. 

According to the source, the government expects inflation to reach 2.7% in 2026 and 3.0% in 2027, before easing to 2.2% in 2028.

Recent Inflation Data

German inflation rose rose to 3.3% in September, accelerating to its highest level in almost three years, data showed on Wednesday.

Government Measures to Counter Inflation

To help citizens deal with fuel prices sent soaring by the Iran war, Merz's federal government will cut taxes on gasoline and diesel by €0.17 ($0.20) per litre from October to the end of December.

(Reporting by Holger Hansen; writing by Maria Martinez and Christian Kraemer; editing by Philippa Fletcher and Nick Zieminski)