Germany’s IMK institute more than doubles economic growth forecast for 2026

Germany's Macroeconomic Policy Institute (IMK) has more than doubled its economic growth forecast for 2026, predicting a 1.3% increase in GDP growth. This significant revision comes after stronger-than-expected exports in the first half of the year and higher government spending on defense and infrastructure. The institute's previous forecast had been 0.6% growth for 2026, which has now been revised to 1.3%. IMK expects a similar growth rate of 1.4% in 2027, up from an earlier estimate of 0.9%.

IMK's forecast aligns with similar predictions from other economic institutes, including Ifo, DIW, and RWI, who also raised their growth forecasts following a robust first half of the year. Sebastian Dullien, an IMK economist, noted that Germany's position as a business location remains resilient despite recent dire predictions.

However, he acknowledged that the recovery is not yet self-sustaining due to high energy prices and economic policy uncertainty weighing on household consumption. Private consumption is expected to contribute only 0.1 percentage point to GDP growth this year, while government consumption, including additional defense and ammunition spending, is anticipated to add 0.7 percentage points.

IMK also projected inflation rates of 2.7% for 2026 and 2.9% for 2027. The unemployment rate is expected to remain steady at 6.4% for both years.