Germany's IfW economic institute upgraded its 2026 growth forecast for Europe's largest economy on Thursday in light of a potential boost from a planned increase in public spending advocated by conservative election victor Friedrich Merz.
IfW, a key economic predictor in Germany, now anticipates a 1.5% growth in the country's gross domestic product next year, up from its previous estimate of 0.9% in December.
While maintaining its prediction of economic stagnation for Germany in 2025 due to persistent structural issues amid global competition and tariff concerns, IfW highlights Merz's efforts to rally support from other parties to secure a substantial rise in government borrowing for defense and infrastructure investments.
The upcoming chancellor candidate Merz, from the conservative CDU/CSU party bloc, currently enjoys initial support from the Social Democrats (SPD) but must garner backing from additional parliamentary members before the end of the current term.
"If you look at our outlook for next year, we are assuming that the measures agreed upon in preliminary talks between the conservative parties and the SPD will be partially put into effect and that fiscal policy will take on a notably more expansive approach," IfW stated.