GERMANY: Joint Economic Forecast Downwardly Revises Growth Across 2026/2027

German institutes have downwardly revised their view for German 2026 and 2027 growth (to 0.6% and 0.9%, from 1.3% and 1.4% seen last autumn), and upwardly revised their CPI forecasts for the country (to 2.8% and 2.9%, respectively, from 2.0% and 2.3%). Key highlights below:

• "While higher inflation is dampening private consumption, the expansionary fiscal policy is providing stimulus. The strong expansion in new debt for defense, infrastructure, and climate protection is bolstering companies in the defense industry and civil engineering. Overall, however, industry is developing less dynamically since its international business is barely expanding given the continued decline in competitiveness, high geopolitical uncertainty, and persistent trade policy burdens. "
• "In the medium term, the institutes expect growth in Germany’s production potential – currently at 0.2 percent – to come to a complete standstill by the end of the decade. According to the institutes, in addition to the decline in the working-age population due to demographic factors, the decrease in working hours per person in employment is also contributing to that."
• "The massive new debt will push the public budget deficit to 3.7 percent of gross domestic product (GDP) in 2026 and 4.2 percent in 2027, raising gross debt to 67.2 percent of GDP. The institutes assess the fiscal stimulus as a key economic boost. However, they point to the long-term risks to the stability of public finances and the significant consolidation efforts that will be required toward the end of the decade."