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Domestic demand to drive German recovery in 2026, says IMK
Published by Global Banking and Finance Review
Posted on December 17, 2025
2 min readLast updated: January 20, 2026
Global Banking and Finance Review
Company
Published by Global Banking and Finance Review
Posted on December 17, 2025
2 min readLast updated: January 20, 2026
Germany's economy is forecasted to recover in 2026 driven by domestic demand, with GDP growth at 1.2% and increased public investment.
BERLIN, Dec 17 (Reuters) - Germany's economy will next year experience its first domestically-driven recovery since reunification, breaking with decades of export-led growth, a forecast by the Macroeconomic Policy Institute IMK showed on Wednesday.
The institute projected GDP growth of 1.2% in 2026, up from a meagre 0.1% this year. The recovery will be fuelled by government investment and rising private consumption rather than foreign trade, which remains weak, it said.
Three German economic institutes cut their growth forecasts for Europe's biggest economy last week.
IMK director Sebastian Dullien cited U.S. tariffs, weak Chinese demand, and euro appreciation as headwinds constraining Germany's foreign trade.
"After four years of weak growth, the supporting factors are now gaining the upper hand," Dullien said, pointing to solid wage growth and increased public investment as key drivers.
However, a labour market improvement will lag the recovery. The unemployment rate is forecast to rise to 6.3% in 2025 from 6.0% in 2024 and remain at that level through 2026.
The government's investment programs are projected to push the budget deficit to 3.3% of GDP in 2026, above the euro zone's 3% threshold.
The deficit for 2025 is forecast at 2.5%, according to IMK, still within EU limits.
(Reporting by Maria Martinez and Klaus LauerEditing by Madeline Chambers)
Economic growth refers to an increase in the production of goods and services in an economy over a period of time, usually measured by GDP.
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