Germany’s economic outlook has improved sharply, although economists continue to warn that the recovery remains fragile.
The German Economic Institute, or IW, now expects the economy to grow by nearly 1.2% in 2026, roughly triple its previous 0.4% forecast from May.
The upgrade follows stronger-than-expected exports and increased government spending during the first half of the year.
IW expects German exports to rise about 2.8% this year, while imports are projected to increase around 2%.
The stronger headline forecast does not eliminate Germany’s structural problems.
High energy costs, weak private investment and employment losses are expected to restrain activity during the second half of 2026. Private consumption is forecast to grow only around 0.3%, with inflation above 2.5% continuing to pressure household purchasing power.
Germany remains one of the world’s largest economies, but its industrial base has faced sustained pressure from energy costs, international competition and weaker investment.
For European markets, the revised forecast offers evidence that fiscal spending and exports have provided more support than expected.
The question is whether that momentum can survive once temporary export and inventory effects fade.
