IfW Kiel Projects Stronger Economic Growth for 2026

The Institute for the World Economy (IfW) in Kiel has revised its economic forecast for Germany, indicating a more optimistic outlook for 2026. According to the newly released spring forecast, the IfW anticipates a significant increase in the country's gross domestic product (GDP) next year, estimating a real growth rate of 1.5 percent, up from the previous projection of 0.9 percent.

The GDP, which reflects the total value of goods and services produced within the nation, is expected to benefit from planned defense spending, which could provide a structural boost to the economy if allocated effectively. Moritz Schularick, the president of IfW Kiel, emphasized the importance of directing these funds to German and European companies to maximize their impact.

In addition to growth, the institute forecasts an inflation rate of approximately 2 percent in 2026, along with a decrease in the unemployment rate to 5.9 percent, down from an anticipated rate of 6.2 percent for the current year. However, the IfW projects that government debt will rise to 65.4 percent in relation to GDP, compared to 63.3 percent previously reported.

These projections are based on the assumption that the outgoing Bundestag will approve a special fund of EUR500 billion and reform the debt brake mechanism. For the current year, the IfW maintains its earlier prediction of stagnation in the German economy, a scenario it first outlined in its winter forecast presented in December.