Germany’s economic revival hits speed bump Despite signs of gradual rebound

Germany’s government has sharply revised down its economic growth outlook, cutting its 2026 forecast by nearly a quarter as the recovery in Europe’s largest economy gains momentum more slowly than expected.

Chancellor Friedrich Merz’s administration now projects gross domestic product to grow by around 1% this year and 1.3% in 2027, down from earlier forecasts of 1.3% and 1.4%, according to German media reports.

Economy Minister Katherina Reiche confirmed the revised figures this week, updating projections that were last published in October 2025. The downgrade comes just months after Merz’s governing coalition took office in May, having made economic revitalization a central priority.

Since entering government, the coalition has launched a broad investment push, including the creation of a €500 billion fund aimed at modernizing Germany’s aging infrastructure over the next 12 years. It has also cleared the way for higher defence spending and is pursuing measures to subsidize energy prices for heavy industry, cut red tape and accelerate Germany’s lagging digital transformation.

“The background to the somewhat cautious estimate is the fact that the expected impetus from the financial and economic policy measures wasn’t realized quite as quickly and to the extent that we assumed,” Reiche told reporters. At the same time, she said recent data point to a “clear recovery.”

Her comments follow the release of preliminary official figures two weeks ago showing that Germany returned to modest growth of 0.2% last year after two consecutive years of contraction — the weakest stretch for the country’s economy since the founding of the Federal Republic.

Germany is the world’s third-largest economy, behind the United States and China and just ahead of Japan, and remains by far the biggest economy in Europe. The country has long ranked as the world’s third-largest exporter, driven above all by shipments of motor vehicles and automotive parts, as well as chemical products.

In recent years, however, this export-led model has come under pressure from intensifying competition from Chinese firms, higher energy costs in the wake of the Russia-Ukraine war and subsequent sanctions affecting the country's export markets, and growing external risks, including tariff and trade threats from US President Donald Trump. Despite its industrial strength, services account for the largest share of economic activity, contributing around 70% of Germany’s gross domestic product.

By Nazrin Sadigova