(de-news.net) – Germany has raised its 2026 growth forecast to 1.3 percent, citing stronger exports and public investment in infrastructure and defense. The Government expects growth of 1.1 percent in 2027, but warns that the recovery remains fragile and dependent on structural reforms. Coalition leaders are seeking to advance economic, labor-market and pension reforms while maintaining employment. Stronger industrial demand and rising AI investment are also supporting Germany and global trade, although supply constraints and geopolitical risks remain.
Germany’s Federal Government has substantially upgraded its economic outlook, forecasting gross domestic product growth of 1.3 percent this year, well above the 0.5 percent estimate issued in April. The Economy Ministry attributed the stronger projection primarily to improved export performance and debt-financed investment in infrastructure and defense. The revised assessment indicates that the German economy has demonstrated greater resilience than expected despite turmoil in the Middle East and higher energy costs.
The updated forecast was presented in Berlin on Thursday by Economy Minister Katherina Reiche (CDU). The Government now expects economic growth of 1.1 percent in 2027, followed by a considerably weaker expansion of 0.6 percent in 2028. The upward revision follows similar moves by several leading economic research institutes, which have also recently raised their assessments of Germany’s prospects.
Reiche emphasized, however, that the recovery remained fragile. Germany continued to face pressure from external crises while also confronting structural weaknesses that could constrain longer-term growth. Among the priorities she identified were more competitive energy prices, greater stability in social-security contributions, reduced bureaucracy and more flexible working-time arrangements. The revised forecast comes after a prolonged period of weak economic performance, during which the Government had lowered its expectations as higher oil and gas prices linked to the Iran conflict increased pressure on the economy.
Coalition prioritizes growth and reform
The governing coalition has used the improved economic outlook to underscore the role of public investment in supporting the recovery. Finance Minister Lars Klingbeil (SPD) argued that spending on infrastructure and other future-oriented projects was strengthening Germany’s competitiveness, helping safeguard employment and contributing to a revival in exports. He also pointed to broader international partnerships and efforts to protect German industry from competitive distortions as potential sources of additional economic momentum.
The improved outlook came as the leaders of leaders of the governing parties met at the Chancellery for the first coalition committee session since the summer recess. The meeting lasted almost four hours and was described by parliamentary leaders Alexander Hoffmann of the CSU, Matthias Miersch (SPD) and Thorsten Frei (CDU) as constructive and productive. The three coalition leaders said the Government had agreed that economic growth, secure employment and social cohesion should remain at the center of its work program. They also indicated that the coalition intended to move ahead with outstanding legislative initiatives rather than allowing disagreements over individual measures to delay the broader reform agenda.
The meeting also provided an opportunity to address tensions surrounding reforms that had already been agreed upon. Chancellor Friedrich Merz had pressed the coalition to implement decisions concerning pensions and the labor market, with particular attention to plans for greater flexibility in working-time regulations. The Union has criticized the SPD-led Labor Ministry for not yet presenting the legislation required to advance that initiative.
According to SPD parliamentary manager Dirk Wiese, the coalition meeting helped establish a more workable basis for continued cooperation. He said the discussions had allowed the parties to address recent developments directly, restore a confidential working environment and establish concrete schedules for upcoming measures. Wiese also emphasized that major reforms remained in preparation alongside a range of legislative projects that were proceeding with comparatively little public attention.
Investment in AI supports both trade and technology
The Ifo Institute linked the improvement primarily to a sharp increase in demand and new orders. Companies reported substantially stronger incoming business and, after a prolonged period of weakness, expressed greater satisfaction with the state of their order books. That improvement has encouraged many businesses to consider expanding production in the coming months, while demand from foreign markets is also expected to provide additional support.
The stronger order situation, however, is creating new challenges. Around 40 percent of companies surveyed by the Ifo Institute reported shortages of intermediate products, suggesting that supply constraints could become a limiting factor as production expands. At the same time, more companies indicated that they intended to raise their selling prices. The combination of stronger demand and tighter supplies therefore points to a recovery that could generate both opportunities and new pressures for manufacturers.
Also within Germany, developments in the electrical industry provide another indication that parts of the industrial economy are gaining momentum. The sector’s business-climate index rose 8.3 points in September to 24.8, its strongest level in years, according to the Munich-based Ifo Institute. The improvement was particularly pronounced in companies’ assessment of their current business conditions, which increased by 14 points to 29. Expectations for future business also strengthened, although by a smaller margin.
Technology companies are also anticipating significant opportunities from the rapid expansion of artificial intelligence. SAP Chief Executive Christian Klein has identified new AI products as a major potential source of growth for the software company. He said at the end of September that SAP was facing an unusually strong opportunity to accelerate its business by combining its enterprise software, industry expertise and extensive data resources. Klein has led SAP since 2019 and has been steering the company toward new AI-related business following its earlier strategic shift toward cloud-based services. The company is now positioning its established software and industry knowledge as a basis for expanding into AI products, with investors expecting faster revenue growth.
Broader indicators point to recovery
International assessments are contributing to a more favorable picture of Germany’s economic prospects. The Organization for Economic Co-operation and Development has raised its forecast for German growth this year to 1.1 percent, an increase of 0.4 percentage points from its June projection. The OECD expects GDP to expand by another 1.1 percent in 2027, broadly matching the German Government’s projection for that year.
The broader global trade environment has likewise performed better than anticipated. The World Trade Organization has raised its forecast for merchandise trade growth this year from 1.9 percent to 3.9 percent, with rapidly increasing investment in artificial intelligence identified as a major factor behind the revision. During the first half of 2026, demand for semiconductors, data centers and digital infrastructure accounted for a substantial share of the expansion in global merchandise trade.
The WTO said the effects of the Middle East crisis, including the temporary closure of the Strait of Hormuz, remained a significant burden on international commerce. At the same time, the organization assessed that the rapid expansion of AI-related investment was more than compensating for those pressures. The WTO expects merchandise trade to increase by 4.1 percent in 2027, compared with growth of 4.6 percent recorded the previous year.
Taken together, the developments point to an economy benefiting from stronger exports, public investment and selected areas of industrial and technological demand, while remaining exposed to external shocks and domestic structural constraints. Germany’s revised forecast therefore represents a more optimistic assessment of the immediate outlook, but the Government continues to regard the recovery as vulnerable and dependent on progress with reforms.
