Germany sinks 2026 growth forecast to 1% as outlook darkens

The German government has lowered its forecast for 2026 growth by 0.3 percentage points to 1%, the Economy Ministry said on Wednesday, as the country's economic woes looked set to persist.

Europe's largest economy expanded by 0.2% in 2025, narrowly avoiding a third consecutive year of recession, but a long-awaited return to significant growth seems increasingly unlikely.

The drop in the government's annual forecast, which was presented by Economy Minister Katherina Reiche in Berlin, was blamed on a weaker-than-expected recovery in the second half of last year, which has bled into the start of 2026.

Billions in government investments in infrastructure, climate finance and defence are set to provide a much-needed impetus but have been unexpectedly slow to take effect, the report also warned.

Finance Minister Lars Klingbeil said the implementation of government investments needs to accelerate.

Volatility in global trade is also likely to present further issues for Germany's export-led economy.

"Despite the largely robust development of global growth and trade, the global economic outlook remains difficult," the government said.

Exports to the key US market plunged by almost 10% in 2025 due to the Trump administration's new tariff policies, while international competition is rising, especially from China.

The chief executive of the Federation of German Industries, Tanja Gönner, said the expected economic recovery is "modest and remains fragile."

Helena Melnikov, head of the German Chamber of Commerce and Industry, added: "Germany is growing, but far too slowly."

The German government's top priority is to get the economy back on track for growth, said a government spokesman.

Klingbeil said the country's competitiveness must be strengthened through higher productivity, innovation, education and research, and attracting skilled workers from abroad. 

Business groups see structural issues as responsible for the weakness of the German economy. Among the problems commonly listed are excessive energy prices compared to other countries, high taxes and duties, and too much bureaucracy.