Germany Faces Sluggish Economic Growth and Rising Food Prices in 2026

Germany’s economic outlook for 2026 appears subdued, with growth forecasts downgraded amid ongoing headwinds. The country has been in recession since late 2022, and growth for 2025 is projected at a mere 0.1%. The Deutsche Bundesbank recently lowered its growth forecast for 2026 from 0.7% to 0.6%, while the ifo Institute estimates growth at 0.8%. Experts are concerned about the effectiveness of Chancellor Friedrich Merz's planned investment offensive, especially given worries that funds may be diverted into social spending rather than stimulating long-term growth. Additionally, Germany’s economic vulnerability stems from its continued dependence on Russian gas despite geopolitical tensions exacerbated by the war in Ukraine, alongside stiffening competition from China.

An additional factor offering marginal support to growth is the expected increase in workdays in 2026, which could raise GDP by about 0.3%, though analysts caution this is not a sustainable trend.

Meanwhile, rising food prices have become a significant social concern, spurring political action from the Social Democratic Party (SPD). Since 2020, food prices have surged by around one-third, placing substantial strain on low- and middle-income households. In response, the SPD has unveiled the “Deutschland-Korb” initiative, which proposes a basket of affordable, price-stable staple foods sourced from Germany’s major product categories. This initiative encourages voluntary participation from retail chains to make these staples more accessible.

The SPD’s plan also targets hidden price hikes by strengthening consumer protections and enforcing clear labeling requirements, drawing on the EU directive against unfair business practices. To ensure transparency about pricing dynamics throughout the supply chain, the party aims to establish a state price monitoring agency capable of detecting problematic trends early.

While some business surveys report that around 40% of companies expect higher sales and production in 2026, general economic sentiment remains cautious due to persistent challenges. Experts warn of rising government debt concerns through 2035, which could constrain fiscal flexibility.

In summary, Germany is likely to experience only modest economic growth in 2026 amid complex internal and external pressures, while political measures like the SPD’s action plan seek to alleviate the impact of rising living costs on its citizens.