KfW Research sharply lifts its growth forecast for Germany for 2026

• Gross domestic product is likely to grow by 1.5 per cent in real terms next year
• KfW Research now expects growth of no less than 0.2 per cent for 2025
• Federal Government’s investment package will kickstart the economy

The Federal Government is planning to run a very expansionary fiscal policy this year already. Its fiscal stimulus is coming even faster and will also be larger than anticipated. KfW Research therefore expects significantly stronger economic growth for 2026 than previously expected and has raised its forecast by 0.5 percentage points to now 1.5 per cent.

KfW Research has also lifted its forecast for this year from 0.0 per cent to now 0.2 per cent. The German economy will grow only moderately this quarter, but the economic momentum will then gradually intensify. “Towards the end of the year, tailwinds should predominate for the German economy. The Federal Government’s investment initiative can be expected to provide a first economic boost already in the fourth quarter”, said Dr Dirk Schumacher, Chief Economist of KfW. “Signs of increasing credit demand from businesses and households also indicate growing private investment activity. Businesses appear to be coping quite well with the significant US tariff increases imposed since the spring of 2025.”

Euro area growth this year is driven by surprisingly strong momentum at the start of the year – after revisions. KfW Research has upgraded its growth forecast for 2025 by 0.4 percentage points to 1.2 per cent. After tariff-induced pull-forward effects dissipated, it is now moving along at a slower pace for the time being. KfW Research now expects 1.1 per cent growth in the euro area for 2026.

With respect to inflation, KfW Research stands by its previous forecast of 2.1 per cent for Germany for 2025 and 2.0 per cent next year (measured by the Harmonised Index of Consumer Prices – HICP).

“After the past price shock, inflation in Germany is now back under control”,

said Dr Dirk Schumacher. KfW’s Economics Department expects consumer prices in the euro area to increase by 2.0 per cent in 2025 and 1.9 per cent in 2026.

Upside and downside risks to the forecast for the development of the German and European economy arise particularly from ongoing uncertainties in connection with US trade policy and with respect to the implementation and impact of the investment package in Germany.

The current KfW Business Cycle Compass is available at: KfW Business Cycle Compass | KfW