Germany’s economy appears to be making a fresh come back after a prolonged period of stagnation, with better exports and government investment helping fuel growth. The German economy’s latest forecast paints a brighter picture of Europe’s largest economy, but inflation, high energy prices and sluggish household expenditure are still hampering the recovery.
The German government increased its forecast for gross domestic product (GDP) growth on October 8 2026 to 1.3 percent in 2026, up from a 0.5 percent estimate back in April, the country’s economy is projected to grow 1.1 percent and 0.6 percent respectively in 2027 and 2028. The update came after surprisingly robust data from the economy in the first half of the year.
Exports are proving crucial to the German recovery. The country continues to be a large exporter of vehicles, industrial equipment, chemicals, and other manufactured products and foreign demand is a key thing in its economy.
Exports are forecast to increase 3.7% in 2026, driven by more dynamic trade and industrial performance. The export industry in Germany meanwhile was likely to gain from a surprisingly strong first half of the year with the performance of manufacturing and foreign trade being better than many market participants expected.
Yet, the picture is far from clear. Germany’s firms are still under heavy pressure from overseas competitors, mostly in markets that are experiencing swift technological change. Uncertain trade relations and political conflicts pose further dangers for businesses that rely on international sales.
That’s why, this recent revival is a welcome pick-me-up, not evidence that the long-standing problems faced by Germany’s manufacturing sector have simply been obliterated.
A further key factor behind the improved forecast is the surge of public investment. The government of Chancellor Friedrich Merz has announced a large, debt-financed investment package of infrastructure and defence projects, with around 1 trillion planned to be invested in the decade ahead.
The package will upgrade transport infrastructure, boost national security, and lay the groundwork for sustained economic growth. In addition, investment in new infrastructure can generate increased spending in construction engineering tech, and industry suppliers providing a boost across the economy.
Over the next few years, the government expects spending on infrastructure and defence will contribute more to public investment and government consumption. This will have to be weighed against the time it takes to implement the identified funding programmes into tangible outputs and productive capacity.
Another point made by economists is that public spending would not be enough to ensure a sustainable recovery. For growth to be more sustainable, Germany also takes higher private investment, growth, and structural reforms.
Though, despite the better outlook for growth, German consumers are concerned. Rising energy prices and increased uncertainty means that many households have less appetite for consumer spending, which constrains growth from private consumption.
Private consumption is also seen rising just 0.3% in 2026, versus 1.3% in 2025. Inflation is estimated at 2.7% for the current year and 3% in 2027 before dropping to 2.2% in 2028. While an improving industrial sector could support spending, increasing inflation pressures may continue to dent consumer sentiment.
