Bundesbank cuts 2026 growth forecast to 0.5 percent

The central bank also lowered its growth forecast for 2027: Instead of a stronger upswing, it now expects growth of 0.8 percent. From 2028, the economy is expected to pick up again and grow by 1.4 percent. The German government and its advisory body, the "Council of Economic Experts," also expect only meager growth of 0.5 percent for this year. The leading economic research institutes are slightly more optimistic at 0.6 percent.

2027 Forecast Also Trimmed

Only after the weak summer months will the economy "allmählich an Fahrt gewinnen" again, according to the Bundesbank's statement. The central bank also considers it supportive that higher government spending — including from the billions in special infrastructure fund — is preventing a severe downturn. Nevertheless, the economy remains burdened by supply bottlenecks, labor shortages, and high labor and energy costs.

The Bundesbank assumes that employment will initially decline slightly this year and then rise noticeably again from the middle of next year. In the central bank's assessment, the gloomy outlook is also shaped by the Iran war, which is feeding through to the German economy via higher oil and gas prices. The German government aims to put together a reform package by the parliamentary summer break in July, covering the labor market, social insurance, income tax, and bureaucracy reduction.

Labor Market and Reform Package

In 2025, Germany narrowly avoided a third consecutive year without growth, with a tiny gain of 0.2 percent. The Bundesbank described the economic situation in Frankfurt as overall subdued. It sees the economy only gradually regaining momentum after the summer months.

The central bank emphasizes that the energy price shock is driving inflation upward and continuing to put pressure on private households' purchasing power. This, in turn, is curbing consumer spending, which has traditionally been an important growth driver in Germany. As a result, the recovery remains fragile and tied to the development of energy prices.

Outlook: Cautious Optimism

Looking ahead to the coming years, the Bundesbank is cautiously optimistic: falling inflation rates and rising investment — also under the billions in special fund — are expected to gradually strengthen growth. Until then, however, economic development in Germany is expected to remain subdued, according to the Frankfurt-based central bank.