ABN AMRO’s chief economist for Germany, Alexander Krüger, said the country’s economic output is gradually expanding, prompting the Dutch bank to lift its gross domestic product (GDP) growth projections for 2026 to 1.3% and for 2027 to 1.1%. The revised outlook, released this week, reflects a measured improvement in Europe’s largest economy after two years of near-stagnation.
The new forecasts mark a notable upgrade from the bank’s previous estimates, which had pegged 2026 growth at just 0.8%. Krüger described the outlook as one of “cautious optimism,” pointing to firmer industrial activity and resilient domestic demand as key drivers.
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What’s behind the upgrade
Germany’s economy contracted by 0.3% in 2023 and posted negligible growth of 0.1% in 2024, making it one of the weakest performers among advanced economies. However, recent data suggests a turning point. Industrial production has stabilized, export orders are picking up, and private consumption is benefiting from easing inflation and gradual wage growth.
ABN AMRO’s revised figures align with a broader trend of forecasters turning slightly more positive on Germany. The German government’s own council of economic experts projected 1.1% growth for 2026 in its spring report, while the International Monetary Fund estimated 1.2% in its latest World Economic Outlook.
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Krüger noted that the recovery is still fragile. “The upward revision is justified by recent momentum, but we are not seeing a broad-based boom,” he said in a research note. He emphasized that the growth path depends on continued disinflation and stable energy prices.
Structural headwinds remain
Despite the brighter near-term picture, ABN AMRO cautioned that Germany’s long-term challenges have not disappeared. The country faces a shrinking working-age population, bureaucratic hurdles in the construction and services sectors, and the lingering impact of higher energy costs following the 2022 supply shock.
Export-oriented industries, particularly automotive and chemicals, continue to grapple with weaker demand from China and the transition to electric vehicles. The government’s 2026 federal budget, which aims to reduce the structural deficit while increasing defense spending, could also constrain fiscal stimulus.
The European Central Bank’s gradual easing cycle, which began in 2024, is expected to provide some relief to investment. But Krüger warned that monetary policy alone cannot address the structural reforms needed to boost productivity.
What this means for markets and policy
The upgrade comes as investors watch for signs that the eurozone’s largest economy can sustain a recovery. Germany’s GDP accounts for roughly a quarter of the euro area’s output, so its performance has outsized implications for the single currency and ECB policy decisions.
If the 1.3% forecast materializes, it would mark Germany’s strongest annual growth since 2022, when the economy expanded by 1.8% following the post-pandemic reopening. For businesses, the outlook suggests improving order books but not yet a return to pre-2020 dynamism.
For households, the modest growth forecast implies continued gradual improvement in the labor market, though unemployment is expected to remain slightly elevated at around 6%. Real wages are projected to rise modestly, supporting consumer spending.
Krüger concluded that the risks to the forecast are “broadly balanced,” with potential upside from a faster-than-expected resolution of the Ukraine conflict and downside from renewed energy price spikes or global trade disruptions. The bank plans to update its projections again in December, following the release of third-quarter GDP data.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Economic forecasts are inherently uncertain, and markets can be volatile. Readers should conduct their own research before making any financial decisions.
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