4 percent in 2026 Production is expected to increase by 08 percent in 2026, following a 02 percent rise in 2025 Similar growth rates are anticipated for eastern Germany
While acknowledging a generally robust global economy despite ongoing trade conflicts, the IWH notes that recently increased US tariffs will dampen both world trade and production Monetary policy has largely eased globally as inflationary pressures from 2021-2023 subside, although the US has demonstrated more cautious movement Further interest rate reductions are projected in the US in the coming quarters Fiscal policy across advanced economies is currently considered broadly neutral
Looking specifically at Germany, the economic picture has darkened following a revision of data by the Federal Statistical Office Production has declined since the end of 2022, with a brief recovery in the winter months followed by renewed contraction in gross domestic product Export figures to the US have decreased following the anticipation of higher tariffs and significant declines have been observed in construction investment
Oliver Holtemöller, Head of Macroeconomics and Vice President of the IWH, stated that it remains unclear whether the recovery seen in winter was simply interrupted, or if the German economy is entering a prolonged downturn The labor market currently offers no signs of easing Capacity utilization in manufacturing has risen marginally despite declining production and the Ifo Business Climate Index indicates that companies continue to evaluate their business situation negatively, although expectations are improving, potentially driven by hopes for government investment programs expected from 2026 onward
Significant risks to the German outlook stem from uncertainty surrounding foreign trade The current forecast incorporates losses due to higher US tariffs, but the competitiveness of German manufacturing has been eroding for years Declining export performance is also attributed to technological factors Furthermore, a stronger Euro – and its impact on terms of trade, particularly relative to the US dollar and Chinese Renminbi – is expected to contribute to this trend The IWH cautions that a sustained decline in exports beyond the immediate impact of tariffs could preclude any significant recovery
