Germany’s IW Institute Projects 1.2% Growth for 2026, Up from 0.4% Forecast

The German Economic Institute (IW) has lifted its 2026 growth outlook to 1.2%, a sharp rise from the 0.4% projection released earlier this year. The upgrade follows a stronger-than‑expected first half of the year, buoyed by robust exports and increased government spending. Other leading research bodies—Ifo, DIW, RWI and IMK—have also nudged their forecasts higher.

IW cautions that the momentum may wane in the second half of 2026, citing persistently high energy costs, sluggish private investment and rising job losses that could dampen demand. For 2027, the institute now expects growth of roughly 1%, with consumption and investment each contributing about half of the expansion.

Export activity is a key driver of the revised outlook. Real exports are projected to rise 2.8% this year, while imports will grow 2%. The recent surge in goods exports, partly driven by inventory replenishment, is seen as a temporary boost. Structural headwinds—including elevated production costs, protectionist trade practices, and competition from China—remain significant challenges.

Consumer spending is expected to increase modestly, only 0.3% in 2026, as inflation—running above 2.5%—continues to erode household purchasing power.