Konjunktur: Ende der vierjährigen Konjunkturflaute in Sicht

The German economy could overcome its long-standing crisis in 2026, according to an unexpected good economic prognosis. Leading economic research institutions have significantly increased their expectations for the year. Gross Domestic Product (GDP) could nearly double its growth rate compared to previous expectations and surpass the 1% mark, which has not been reached since 2022.

However, long-term prospects until the end of the decade remain somewhat unfavorable unless the German government implements promised reforms. The Munich Ifo Institute and the IWH in Halle now expect 1.4% economic growth this year, while the RWI Essen and Kiel Institute for World Economy project 1.3%. All forecasts point to a stronger than previously predicted growth in 2027, albeit slightly weaker than this year.

The crisis began with Russia's full invasion of Ukraine in 2022, following the COVID-19 pandemic that had already halted the economy at the beginning of the decade. Although the initial recovery was strong, it was short-lived. Risk factors remain, such as the increase in oil and gas prices due to the Iran war. Wollmershäuser predicts "significant increases in electricity and gas prices, especially in January."

The current economic and consumer burden is due to rising energy costs, particularly at the gas station with record-high gasoline prices. However, there are winners: Germany's chemical and pharmaceutical industry has seen a resurgence due to the Middle East conflict. The sector's sales surged by 7.3% in the second quarter of 2023, according to the industry association VCI.

This growth is attributed to slightly higher production and a 5.7% increase in prices, which the VCI attributes to supply chain problems in Asian and Middle Eastern competitors that are more reliant on Hormuz Strait transport than Europeans. The positive development is also due to federal government-funded investment packages and increased foreign demand.

The Ifo Institute estimates that the industry could even increase its economic output by 1.8% in 2023. The German machinery and plant engineering sector, for example, received more orders in July than the previous year, with a price-adjusted order value 2% above the previous year. However, this growth comes at the cost of rising national debt.

The total state financing deficit could rise from 3% of GDP in 2023 to 4.6% by 2028. The government will feel the burden of interest payments on its own, as they currently amount to 50 billion euros annually and are expected to double to 100 billion euros per year by the end of the decade. Inflation is also expected to remain high or even increase.

The Kiel Institute predicts an inflation rate of 2.7% in 2026 and 2027, while the Ifo Institute expects a rise to 3% in the coming year. Without reforms, the upturn will not be sustainable, according to the Ifo Institute. "Whether companies invest more again depends crucially on political reforms," said RWI Chief Economist Torsten Schmidt.

"However, government spending alone does not generate sustainable growth." German companies still invest little in their domestic locations, and state spending on infrastructure and armament will eventually fade away as social expenditures rise and geopolitical risks increase. Therefore, location-strengthening reforms are essential.