Germany's 2026 growth forecast raised, but public debt warning issued

The German Council of Economic Experts (SVR), which advises the German government, raised Germany's 2026 growth forecast from 0.5 percent to 1.3 percent as exports exceeded expectations and energy shocks were overcome. At the same time, the council called for budget expenditures to be limited and reforms to be implemented against rising borrowing.

In its annual report, the German Council of Economic Experts raised its gross domestic product growth forecast for 2026 from the 0.5 percent announced in May to 1.3 percent, and its 2027 forecast from 0.8 percent to 1 percent. The council projected that annual inflation would rise to 2.8 percent this year and 3.3 percent next year.

SVR Chair Monika Schnitzer stated that the strong export performance in the spring and the rapid overcoming of oil and energy price shocks were influential in the recovery. Chancellor Friedrich Merz expressed that this positive change is encouraging for businesses and private households.

Public finance and borrowing warning

Despite the economic recovery, the council emphasized that the pressure on public finances is increasing, warning that public debt, which stands at 63 percent of GDP, could reach 98 percent of GDP by 2040 due to rearmament expenditures. It was projected that the budget deficit could be between 2.7 percent and 4.8 percent by 2040.

The council recommended that the debt brake exemption threshold applied to defense expenditures be gradually increased starting from 2031; it also advised removing the early retirement option at age 63 for those who have paid 45 years of contributions and rolling back the "mother's pension" regulation starting in 2027.