Unexpectedly strong foreign trade has led the German Institute for Economic Research (DIW) to forecast considerably more robust growth than previously assumed. "The German economy has proved more resilient this year than expected in early summer," the DIW said on Wednesday in Berlin. The institute now projects growth of 1.2 percent for 2026, in June it had cut its forecast to 0.5 percent.
According to the DIW, the revision was driven "above all by the unexpectedly strong foreign trade in early summer and by the fact that the energy price shock following the Iran war turned out to be smaller than initially feared." Government investment also remains a growth driver, particularly in the form of the special fund for climate protection and infrastructure, and defence spending.
Acting as a brake on the economy, the research institute says, are "high gas prices, structural problems in industry and weak private domestic demand." For 2027, the DIW's autumn economic forecast anticipates an increase of 1.0 percent, and 0.7 percent for 2028.
"The German economy is recovering somewhat better this year than expected, but it is still standing on rather shaky legs," summarised DIW head of economic research Geraldine Dany-Knedlik. "The rise in oil prices was surprisingly moderate despite the Iran war, partly because strategic reserves were released," she explained. "At the same time, exports were supported by special factors. Neither is likely to hold up permanently."
Business sentiment has also brightened recently, the DIW researchers say, but the outlook for the coming quarters remains "muted." High energy prices and low water levels on key waterways are holding back energy-intensive sectors in particular, such as the chemicals and metals industries. "At the same time, the burdens from the energy price shock are only likely to become fully visible with a delay," the institute said. "High gas prices in particular remain a risk for the winter half-year."
DIW President Marcel Fratzscher stressed that the economy owes its current momentum "above all to the public sector." "Around 70 percent of economic growth this year is attributable to public consumption and investment," he said. The greatest weak point, by contrast, remains private domestic demand. Despite the improved economic outlook, he added, caution is warranted: "An escalation in the Middle East or new trade conflicts could slow the recovery again," the DIW chief warned. Even so, there is reason for "cautious optimism."
Other research institutes have also identified more positive signs for economic developments in Germany. On Tuesday, the new SME barometer from development bank KfW and Munich's Ifo Institute found that sentiment among mid-sized companies brightened surprisingly sharply in August. Sentiment in the German export sector has also improved markedly.
At the end of August, the Federal Statistical Office also revised its first estimate of economic output in the second quarter upwards. At plus 0.3 percent, it was 0.1 percentage points higher than assumed at the end of July, supported above all by strong export performance.
Looking at worldwide developments, the Berlin-based DIW said on Wednesday that the global economy is also proving "robust." While higher energy prices are weighing on private consumption and energy-intensive production, the "investment boom" in artificial intelligence (AI) and rising defence spending in many countries are supporting demand. For 2026, the DIW researchers expect global growth of 3.2 percent.
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