German Economy Growing More Strongly Than Expected in 2026 – Institutes Revise Forecast Upward

At the same time, the institutes identify persistent burdening factors for the business location. High energy costs, rising social security contributions, a shortage of skilled workers, bureaucracy, and growing international competition are weighing on the location. These structural problems remain and are dampening growth potential.

Structural Burdens Remain

The labor force gap is considered one of the central growth brakes. A shrinking working-age population, unfilled positions in many industries, and a tax and burden burden that is high by international comparison are limiting companies' room for maneuver. The institutes see this as a key reason why growth is falling short of potential despite the economic revival.

Energy prices also remain a location disadvantage according to the institutes' assessment. Although the supply situation has stabilized since the crisis years, price levels for electricity and gas in Germany remain significantly above those in important competitor countries. Energy-intensive industries such as chemicals, steel, and glass are particularly affected.

Rising social security contributions are further aggravating the situation for companies. Higher non-wage labor costs are making labor more expensive and pose major challenges, especially for medium-sized businesses. The institutes expect this trend to continue without political countermeasures.

Bureaucracy and lengthy approval procedures are another obstacle according to the institutes' presentation. Planning and investment decisions are delayed as a result, and innovation-oriented companies find faster conditions in other countries. International competitive pressure has also intensified because competitor locations in Asia and North America are expanding state investment incentives.

Need for Reform for More Growth

At the same time, the institutes emphasize that the better economic situation is no reason for complacency. Although exports and industrial production are running better again, the structural weaknesses remain. Without reforms in energy prices, taxes, bureaucracy, and skilled worker immigration, the location threatens to lose further competitiveness.

With a view to the coming years, the institutes therefore expect only a moderate growth path. The momentum of the current year is primarily a catch-up movement following the weak phases of previous years. To raise growth potential permanently, investments in education, infrastructure, and digitalization, as well as effective skilled worker immigration, are necessary.

International organizations such as the OECD have also recently pointed out that Germany can only overcome its growth weaknesses with comprehensive structural reforms. The institutes' revised forecast is therefore interpreted as a glimmer of hope, but not as a trend reversal.

Economists such as Stefan Kooths and Oliver Holtemöller pointed out in their analyses that the better economic data is mainly attributable to catch-up investments and a revival of world trade. The domestic economic risks – a shrinking working-age population, high energy costs, and growing competitive pressure – remain.

Conclusion: Stabilization Rather Than Trend Reversal

Overall, the institutes see the German economy in a phase of stabilization, not euphoria. The higher growth is a sign of recovery, but does not replace reforms. Policymakers and companies must use the more favorable economic situation to specifically address the structural weaknesses of the location.

The economic engine is running again, according to the institutes, but urgently needs to be placed on a broader, structurally sustainable basis. This includes relief on energy and social contributions, less bureaucracy, faster approvals, and targeted skilled worker immigration. Otherwise, growth potential will remain limited in the medium term.