IMF sharply raises growth forecast for German economy

Germany's economy is expected to grow much faster this year than previously forecast, the International Monetary Fund (IMF) said on Tuesday, nearly doubling its growth projection for 2026 to 1.3%.

The IMF had predicted growth of just 0.7% in July. For 2027, its economists now expect growth of 1.1%, up 0.1 percentage points from their previous forecast.

The new figures match those released by the German government last week. The Economy Ministry said the improved outlook reflected the German economy's unexpected resilience.

Economy Minister Katherina Reiche said two-thirds of the improvement was due to government investment in infrastructure and defence, with exports accounting for the remaining third. 

German exporters were temporarily able to benefit from global supply shortages, as buyers stepped up stockpiling of energy-intensive goods such as steel, fertilizers and aluminium produced in Germany amid the conflict in the Gulf region. German suppliers are also benefiting from the boom in artificial intelligence.

Global economy outlook raised slightly

The IMF also slightly raised its outlook for the global economy, forecasting growth of 3.1% in 2026, up from 3% previously. It kept its forecast for 2027 unchanged at 3.4%.

The fund said the global economy had become more resilient to energy shocks. Higher oil production outside the Gulf, the release of strategic reserves and weaker demand in China have helped cushion the impact of rising energy prices, according to the IMF.

US President Donald Trump launched the war against Iran alongside Israel just over six months ago. The conflict led to the blockade of the Strait of Hormuz, a crucial shipping route for global energy trade that had remained open before the war.

Since then, only a fraction of the usual commodity trade has passed through the strait, with tight supplies and strong demand driving prices sharply higher.

However, the IMF said the impact on the US economy has so far been limited. Its economists maintained their forecast of 2.3% growth for the United States this year. They also expect the economy to expand by 2.3% in 2027, slightly more than previously anticipated.

Energy crisis expected to have limited direct impact on US

Continued consumer spending and strong corporate investment in new technologies are helping to support growth, the IMF said.

In addition, government economic policy, favourable credit conditions and high corporate productivity supported growth. The organization expects the energy crisis to have a limited direct impact on the US, noting that the country exports more energy than it imports as a net energy exporter.

The eurozone is also expected to perform better than previously forecast, according to the IMF. The economy of the currency bloc is now projected to grow by 1.1% in 2026, up 0.2 percentage points from the July forecast, with growth expected to remain at 1.2% next year.

After stagnating in the first quarter, the economy picked up pace in the second quarter, driven mainly by a strong rebound in Ireland and continued momentum in Spain, the IMF said.

Economic activity in the other eurozone countries remained largely stable, it said, with higher energy prices and weak consumer confidence continuing to weigh on growth.