Germany's Economy Set for Growth in 2026 Amid Calls for Crucial Structural Reforms

Germany's economy is poised for a notable recovery in 2026 after years of stagnation and a minimal growth rate of 0.2% last year. The government forecasts a GDP growth of 1.0%, whereas economists at the German Institute for Economic Research (DIW Berlin) expect 1.3%, and Dirk Schumacher, chief economist at KfW, is even more optimistic with a 1.5% projection. This upswing is largely driven by robust government spending, particularly over 108 billion euros earmarked for defense and increased infrastructure investments, contributing roughly 0.5 percentage points to GDP growth.

However, experts sound a note of caution, emphasizing that without significant structural reforms, the recovery risks being short-lived. Edgar Walk of Metzler Asset Management stresses the need to reduce bureaucratic obstacles, deregulate markets, cut corporate taxes, and maintain stable labor costs to foster sustained investment. Jörg Krämer from Commerzbank highlights the danger posed by the government's current lack of consensus on such reforms. Lessons from other European economies like Spain and Portugal, which achieved higher growth through decisive reforms, underscore Germany's need to act decisively.

In summary, while the government's increased spending has set the stage for economic improvement, the durability of Germany's recovery in 2026 will depend heavily on implementing critical reforms to boost competitiveness and long-term growth prospects.