Ifo, IfW and RWI: German economy will recover in 2026

According to experts, the German economy will overcome its three-year-long crisis in 2026. The Ifo Institute in Munich, the Kiel Institute for the World Economy (IfW), and the Leibniz Institute for Economic Research (RWI) announced their economic forecasts on Thursday, expecting growth of between 1.5 percent (Ifo and RWI) and 1.6 percent (IfW) for 2026.

If gross domestic product grows by 1.5 percent in 2026, that would be almost double the 0.8 percent originally forecast by the Ifo Institute. Ifo Economics Director Timo Wollmershäuser (53) and his colleagues also raised their forecast for this year from 0.2 to 0.3 percent. RWI and IfW also expect this growth. "The crisis in the German economy reached its lowest point in the winter half of the year," said Wollmershäuser.

One reason for the expected boost is the growth package announced by the new federal government. The Munich-based economists estimate the economic impact of the announced spending increases, tax cuts, and investments at €10 billion this year and €57 billion next year.

However, the increased forecast is based in large part on the assumption that the trade conflict with the EU, instigated by the US government, will come to a positive conclusion. "The growing optimism is probably also fueled by the hope that the new coalition will end the economic deadlock and that an agreement will be reached in the trade dispute with the US ," Wollmershäuser said of the companies' expectations. Economic output had already grown strongly by 0.4 percent in the first quarter of 2025, primarily due to forward exports to the US, but also due to higher private consumption and increased investment.

Since the European trade conflict with the United States has not yet been resolved, economic researchers see continued risks in US trade policy. According to the Ifo Institute, the import tariffs already increased by US PresidentDonald Trump (78) at their current level would reduce German economic growth by 0.1 percentage points this year and by 0.3 percentage points in 2026. A settlement in the trade conflict could result in higher growth, but an escalation could threaten a renewed recession. The IfW expects exports to continue to decline by 0.4 percent this year. An increase of 1.2 percent is not expected until next year.

The Ifo Institute does not expect the inflation rate to rise again: According to the forecast, inflation is likely to reach 2.1 percent this year and 2.0 percent in 2026. The unemployment rate could also fall slightly again in 2026. Ifo economists expect it to reach 6.3 percent this year and 6.1 percent next year.

The reason for this development is primarily to be found in the domestic economy. "Private consumption is increasing noticeably again after a two-year dry spell, and corporate investment is also gradually turning positive," according to the Ifo Institute.

The OECD, the organization of industrialized countries, also published its country report on Germany on Thursday. It expects economic growth of 0.4 percent this year, followed by 1.2 percent in 2026. The OECD sees bold reforms as a way out of the crisis. It also calls for incentives to attract more people into the labor market, including through immigration. Starting a business must be made easier, and competition with established companies must be encouraged.