German government raises growth forecasts for 2026 and 2027

German Government Lifts Growth Projections Through 2027 Amid Economic Recovery

Germany's Economic Outlook and Government Forecasts

By Maria Martinez

BERLIN, Oct 8 (Reuters) - The German government has raised its economic growth forecasts for this year and next, as the Iran war is not hurting the economy as much as feared, the economy ministry said on Thursday. 

Updated Growth Projections

The government has raised the forecast for economic growth to 1.3% in 2026 and 1.1% in 2027, confirming the Reuters report on October 1. It expected 0.5% growth for 2026 and 0.9% for 2027 in its April forecasts.

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.

Ministerial Response

"Germany's economy is growing, that is an important signal. But it is only the beginning," German Economy Minister Katherina Reiche said on Thursday. "What matters now is turning this initial recovery into genuine economic momentum."

The new government forecasts are in line with those of Germany's leading economic institutes.

Long-Term Projections

For 2028, the government expects growth of 0.6%.

Political and Social Implications

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.

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

Drivers of the Upturn

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

"This growth must become self-sustaining, that is precisely why we must continue with reforms," Reiche said in the presentation of the new forecasts.

External Factors Impacting the Economy

Wars Key to Future Outlook

WARS KEY TO FUTURE OUTLOOK

Exports and Inflation

Exports will also be a growth driver. 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.

The war in the Middle East is affecting many consumers primarily through inflation. The government expects inflation to reach 2.7% in 2026 and 3.0% in 2027, before easing to 2.2% in 2028.

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

Government Measures

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.

Future Economic Uncertainties

Further economic developments will depend significantly on how the conflicts in the Middle East and Ukraine unfold, the ministry said. A lasting resolution of these crises would accelerate the recovery, but persistent inflation could place a greater burden on businesses and private households.

(Reporting by Maria MartinezEditing by Linda Pasquini)