IMF sharply raises German growth forecast for 2026

The International Monetary Fund has significantly raised its growth forecast for the German economy, projecting expansion of 1.3 percent in 2026, nearly double the 0.7 percent it had predicted in July. The IMF also lifted its outlook for 2027 slightly, to 1.1 percent from a previous estimate of 1.0 percent, according to figures released by the fund.

The upgraded projection puts the IMF in line with the German government, which published identical growth figures for both years just last week. The federal Economy Ministry has attributed the improved outlook to what it described as the unexpectedly strong resilience of the German economy.

Economy Minister Katherina Reiche, a member of the Christian Democratic Union, said two-thirds of the brighter outlook stemmed from state investment in infrastructure and defence, with the remaining third driven by exports. She said German foreign trade had temporarily benefited from global supply bottlenecks linked to tensions in the Gulf region, as buyers built up stockpiles of energy-intensive goods such as steel, fertiliser and aluminium produced in Germany. Reiche also pointed to German suppliers gaining from the global boom in artificial intelligence as a contributing factor.

The IMF likewise raised its growth forecast for the eurozone as a whole. The currency bloc's economy is now expected to grow by 1.1 percent in 2026, an increase of 0.2 percentage points from the July projection, with growth of 1.2 percent forecast for 2027. The fund noted that while the eurozone economy stagnated in the first quarter of the year, growth picked up in the second quarter, driven largely by a strong recovery in Ireland and continued momentum in Spain.

Economic activity in other eurozone countries remained largely stable, the IMF said, though it noted that higher energy prices and weak consumer confidence continued to weigh on growth across much of the currency union.

The forecasts come against the backdrop of continued disruption in global energy markets stemming from the conflict in the Gulf region. US President Donald Trump, together with Israel, launched military action against Iran roughly six months ago. In the aftermath, the Strait of Hormuz, a narrow waterway of major importance to global energy trade that had previously remained open despite the conflict, was blocked. Since then only a fraction of normal commodity trade has been able to pass through the strait, and the resulting imbalance between tight supply and strong demand has pushed prices sharply higher.

Despite that disruption, the IMF said the global economic upswing has not been derailed, pointing to several factors that helped cushion the shock. The fund said the global economy has become more resilient to energy price shocks in general. It also cited higher oil production from producers outside the Persian Gulf, the release of strategic reserves by governments, and a decline in demand from China as factors that helped offset the impact of the price spike.

For the global economy as a whole, IMF economists now forecast growth of 3.1 percent in 2026, up from a previous estimate of 3.0 percent. The fund kept its forecast for 2027 unchanged at 3.4 percent.