German economic body raises annual growth forecast to 1.3%

The German Council of Economic Experts has raised its annual growth forecast for the economy to 1.3% this year and 1% in 2027, marking the first increase since 2022. The organization, an independent advisory body for the German government, also warned of long-term budget shortfalls and severe challenges. Council Chair Monika Schnitzer stated that the country's politicians will face difficult decisions despite a robust economy, fueled by a quicker recovery from the "energy price shock" caused by the Iran war.

Exports have outperformed expectations, and billions in government spending have contributed to growth. The experts anticipate a 2.8% consumer price inflation in 2026 and 3.3% in 2027, driven by rising energy prices. The Council warns that Germany's public finances are under increasing pressure due to growing net borrowing and defense spending.

By 2040, the budget deficit could reach between 2.7% and 4.8% of GDP, equivalent to €120 billion to €215 billion. To address this, the Council suggests phasing out environmentally harmful tax breaks and considering tax increases or a value-added tax rise, although this option is contentious.