(de-news.net) – With exports, fiscal spending, and increased industrial demand providing momentum, Germany’s economic outlook has improved, with major institutions increasing their 2026 growth projections. AI is becoming more widely recognized as a potential source of productivity and future expansion, while the chemical industry is rebounding but is still limited by low capacity utilization and structural costs.
The ifo Institute has significantly upgraded its projections for the German economy, offering a more optimistic assessment of the country’s near-term growth prospects. The institute now expects gross domestic product (GDP) to expand by 1.4 percent in 2026, representing an increase of 0.6 percentage points compared with its previous projection. Economic growth is then forecast at 1.2 percent in 2027 and 0.8 percent in 2028. The revised outlook reflects a combination of stronger fiscal and external impulses. At the same time, the economic drag associated with the energy-price shock linked to the Iran war is now assessed as less severe than had previously been anticipated.
Greater optimism has also emerged among several other German economic research institutions. The German Institute for Economic Research (DIW) has raised its forecast for 2026 to 1.2 percent, an increase of 0.7 percentage points from its June projection. Meanwhile, the Kiel Institute for the World Economy and the RWI in Essen now anticipate economic growth of 1.3 percent this year. Stronger-than-expected exports helped the German economy perform better during the first half of the year than had initially been expected. Nevertheless, significant structural constraints continue to weigh on longer-term performance. High energy and location costs, extensive bureaucracy, and persistently weak competitiveness remain important obstacles to stronger growth. At the same time, increased domestic expenditure on defense, climate policy, and infrastructure is expected to provide additional support for economic activity.
The chemical and pharmaceutical industries have likewise recorded notable improvements despite continuing international tensions. According to the industry association VCI, revenues increased by 7.3 percent in the second quarter, with the rise supported by slightly higher production and increased prices for industry products. Production itself benefited in part from customers rebuilding inventories in response to disruptions associated with the Iran war. The resulting increase in demand has provided a temporary boost to manufacturing activity. However, the industry’s production facilities remained underutilized, with capacity utilization at approximately 73 percent. This relatively low level indicates that the recent improvement should not yet be interpreted as evidence of a broader structural turnaround.
Wildberger urges Germany to move faster on AI
Business sentiment within Germany’s chemical sector also improved substantially in August. The assessment of current business conditions became positive for the first time in four years, reaching 11.6 points. Over the same period, the ifo business climate index rose sharply, moving from minus 26.3 points in July to minus 2.4 points in August. Business expectations also improved significantly, although they remained in negative territory at minus 15.5 points. The improvement has been linked in part to supply disruptions in Asia resulting from the continuing blockade of the Strait of Hormuz, which has increased demand for chemical products manufactured in Germany. With no clear geopolitical resolution in sight, companies expect this exceptional increase in demand to continue. Their production plans consequently point toward an expansion of output.
Export expectations have strengthened as well. The corresponding balance increased to 10.1 points from minus 22.7 points in July, indicating a considerably more favorable assessment of international business prospects. At the same time, material shortages became less widespread. In the third quarter, 13.8 percent of chemical companies reported shortages, compared with approximately one-third during the preceding quarter. Despite these improvements, structural cost pressures remain substantial. Businesses therefore continue to anticipate reductions in employment. Over the medium term, however, government infrastructure and investment initiatives could help sustain demand for chemical inputs, provided that the planned projects are implemented rapidly.
Meanwhile, Digital Minister Karsten Wildberger (CDU) has argued that artificial intelligence could become an important source of additional economic expansion in Germany. His assessment is based on the prospect that AI could raise productivity and accelerate the development and introduction of new products. As international competitors increasingly use the technology to improve efficiency and innovation, Wildberger has argued that Germany cannot afford to delay its adoption. He has therefore maintained that regulatory frameworks should avoid imposing unnecessary restrictions on companies or slowing the deployment of AI.
Wildberger has also pointed to China’s sustained economic growth as an indication of the potential benefits of technological transformation. In his view, Germany could achieve significantly stronger economic growth if AI were adopted and used effectively. Both businesses and policymakers, he has argued, need to overcome excessive caution toward the technology. Given the pace of international competition, he has warned that lengthy regulatory negotiations combined with an excessively negative assessment of AI could leave Germany with too little time to catch up. The underlying concern is that competitors will continue advancing while Germany remains constrained by hesitation over the technology’s use and regulation.
