German Council of Economic Experts raises 2026 growth forecast to 1.3% and warns on budget gap

Growth forecast raised sharply

The German Council of Economic Experts (Sachverständigenrat Wirtschaft) presented its annual report on 11 November 2026 and expects gross domestic product to rise 1.3 percent in 2026 and 1.0 percent in 2027. That would be the first clear expansion since 2022. In its spring report the council had forecast only 0.5 percent growth for this year and 0.8 percent for 2027, although one report gives 0.8 percent as the spring figure for 2026. The federal government and leading economic research institutes have raised their 2026 forecasts to the same 1.3 percent. The economy recovered from the energy price shock triggered by the Iran war faster than the council expected, and the Federal Statistical Office revised last year's GDP slightly upward.

“This year, exports and state consumption spending in particular are supporting overall economic development.”

The council credits exports that performed better than anticipated in the spring, with state spending on infrastructure, climate protection and defence adding support.

20261.3%

20271%

2026

1.3 %

2027

1 %

Data from the article text

Inflation set to climb

Consumer price inflation is projected at 2.8 percent in 2026, up from 2.2 percent in 2025, and is expected to accelerate to 3.3 percent in 2027. The spring estimate for 2026 was 3.0 percent, so the current forecast for this year is slightly lower than before. The council links the rise mainly to energy prices driven up by the Iran war. Growth is therefore accompanied by higher prices, which the report describes as a mixed picture for the economy.

2025

2.2 %

2026

2.8 %

2027

3.3 %

Data from the article text

Productivity, exports and risks

The council says growth is held back by weak productivity growth at companies, which has clearly slowed. The gap between firms is large: according to the report for the federal government, the most productive companies are 3.5 to 5 times as productive as the least productive ones. Closing that gap could have a clearly positive effect on growth, while new technologies and business models could push the productivity frontier forward. Looking ahead, the council expects export growth to weaken, particularly toward countries outside the EU, citing higher US tariffs, the Iran war and growing competition from China. It also describes the outlook for the world economy as subdued.

Budget gap and proposed remedies

The council warns that revenues will not cover planned federal spending over the longer term. Net borrowing is expected to rise significantly until 2030, mainly because of higher defence spending, and the financing gap could reach 2.7 to 4.8 percent of GDP by 2040, or roughly 120 to 215 billion euros measured on last year's GDP. Proposed measures include ending environmentally harmful tax breaks such as those on diesel, reversing the expansion of the mothers' pension supplement, and possibly raising VAT in the medium term. Council member Veronika Grimm takes a different position on tax increases, and the council also floated a solidarity-style levy to fund defence.

Council chair Monika Schnitzer urged restraint in spending growth.

“Limiting the growth of spending in the federal budget is unavoidable.”

Chancellor Friedrich Merz, receiving the report, said the message on stable public finances had been received. Germany is the only G7 country with a triple-A credit rating, and Merz said he wants that to continue.

“I want that to remain the case.”

Economy minister Katherina Reiche (CDU) had stressed the need for structural reforms in early October, and the government is still struggling over reforms such as pensions.