Germany’s economy is projected to experience its fastest growth in four years, propelled by a combination of export gains and increased government spending, according to the latest official forecasts. The country’s gross domestic product (GDP) is expected to expand by 1.3 percent in 2026, more than double the 0.5 percent growth forecasted earlier this year. For 2027, growth is forecast at 1.1 percent.
The German economics ministry highlighted the economy’s resilience, noting that GDP grew strongly in the first half of the year despite ongoing geopolitical tensions in the Middle East and persistently high energy prices. Germany’s economy had faced years of stagnation following Russia’s full-scale invasion of Ukraine in 2022, which triggered a surge in energy costs and economic uncertainty. Quarterly economic output only recently surpassed its late-2022 peak during the first half of 2026.
Central to the anticipated recovery is a large-scale, debt-financed investment program initiated by Chancellor Friedrich Merz’s coalition in 2025. The government has committed to spending €1 trillion over the coming decade on infrastructure and defense projects. Officials expect that this fiscal stimulus will significantly boost public investment and government consumption by 2028.
The positive growth outlook comes in spite of recent shocks to energy markets. Following US and Israeli military actions against Iran in February, global oil prices jumped from below $70 a barrel to over $100, triggering two interest rate hikes by the European Central Bank since June. Market participants are currently pricing in a further quarter-point increase to 2.75 percent by early 2027. Meanwhile, concerns about inflation and rising government debt have unsettled bond markets in both the US and Europe. German 10-year government bond yields climbed to 3.64 percent in late September, reaching their highest level in more than 15 years, though debt worries have increasingly centered on France within the Eurozone.
Despite overall growth, domestic consumption is being dampened by these inflationary pressures. Private consumer spending is anticipated to rise by only 0.2 percent in 2026, down from an expected 1.3 percent increase in 2025. Inflation is projected to average 2.7 percent this year and remain elevated at around 3 percent in 2027.
The recovery is primarily driven by exports and investment, with exports forecast to grow by 3.7 percent and investment spending by 0.6 percent in 2026. The improved growth figures for this year also reflect revisions upward in GDP estimates for 2024 and 2025 made by Germany’s statistical office, contributing to a more favorable baseline for current projections.