Ifo lifts German growth forecasts as fiscal boost offsets energy shock

The Ifo economic institute in Frankfurt has upgraded its growth forecasts for Germany, the world's largest economy. The institute now anticipates a 1.4% increase in gross domestic product for 2026 and 1.2% growth for 2027, both figures representing a marked improvement from its previous summer outlook which anticipated just 0.8% growth for both years. This upward revision comes in the wake of stronger-than-expected economic data and a reassessment of the impact of rising energy prices.

Revised official figures showed that the German economy expanded by 0.3% in the second quarter of 2026, higher than Ifo's earlier prediction of no growth. This robust start to the year, coupled with the ongoing fiscal stimulus, has bolstered the institute's confidence. The German government is set to spend nearly €40 billion on infrastructure, climate neutrality, and defense this year, representing 0.8% of the country's GDP.

Industrial production and exports are also poised to contribute to the economic recovery, buoyed by strong global demand, particularly within Europe. However, the institute cautioned that higher energy prices, driven by geopolitical tensions, could temper household consumption and keep inflation elevated. The current inflation rate is forecast at 2.8% this year and 3.0% in 2027, before easing to 2.3% in 2028.