Germany growth forecasts rise despite energy shock

German growth forecasts for 2026 have been raised by leading research institutes, which said Europe’s biggest economy had withstood the energy shock from the Middle East war better than expected.

The Ifo institute now expects German growth of 1.4 percent this year, up 0.6 percentage points from its June forecast. The Kiel Institute and RWI-Leibniz Institute for Economic Research both raised their full-year forecasts to 1.3 percent, up 0.5 percentage points.

The institutes said the increase in energy costs caused by the conflict had been expected to slow Germany’s rebound, but the effect had been weaker than feared. Germany’s energy supplies are more diversified than in the past, and its companies have weathered the shock better than rivals, particularly in Asia.

Timo Wollmershaeuser, head of forecasts at Ifo, said stronger foreign demand and increased German spending on infrastructure, climate and defence were preventing a more severe slowdown caused by the energy price shock and low river levels.

Low water levels on major German rivers this summer have weighed on industries such as chemicals and steel-making that transport goods by boat.

Growth in the first half of the year was better than expected, while indicators including factory output, exports and business confidence have improved.

The Kiel Institute warned that the recovery remained fragile, citing the war in Iran as a downside risk and saying additional fiscal stimulus would fade in the years ahead. Economists also warned that long-term problems including an ageing population and complex bureaucracy would continue to hold back the economy.