The Ifo Institute in Munich has revised upward its economic forecasts for the current and coming years. The institute reported on Thursday that its economic researchers anticipate Gross Domestic Product (GDP) growth of 1.4 percent for the current year, and projected growth rates of 1.2 percent for 2027 and 0.8 percent for 2028.
This increase represents a boost of 0.6 percentage points for the current year and 0.4 percentage points for the following year compared to the previous forecast. The upward revision stems both from a correction of past data by the Federal Statistical Office and a reassessment of the underlying economic dynamics within Germany. The current forecast emphasizes stronger positive economic drivers-impulses from fiscal policy and foreign markets-while assessing the dampening effect of the energy price shock as weaker.
Ifo chief economic researcher Timo Wollmershäuser noted that significant impulses from abroad, coupled with increased German spending on infrastructure, climate initiatives, and defense, are effectively preventing the energy price shock and river low levels from causing a severe deceleration in growth. He added, “Opportunities are emerging, especially for the struggling industrial sector. The recovery of the German economy is continuing.”
However, the expansive stance of the fiscal policy is projected to lead to a sharp increase in state financing deficits. According to the forecast, the budget deficit is expected to widen from 3.0 percent of GDP in 2025 to 4.6 percent by 2028. During the same period, the gross debt-to-GDP ratio is projected to rise from 62.7 percent to 67.9 percent of economic output.
Regarding pricing, the inflation rate is forecast to rise to 2.8 percent in the current year and 3.0 percent in the coming year. Inflation is only expected to move back toward the European Central Bank’s target of 2.3 percent in 2028. Wollmershäuser stated that while inflation driven by heating oil and fuel is anticipated to decrease throughout the forecast period, consumer prices for electricity and gas may experience further increases during the winter months. Overall, however, high inflation is expected to keep consumer spending subdued.
