Germany's IfW raises 2026 growth forecast as economy regains momentum

BERLIN, Sept 3 (Reuters) - Germany's IfW institute on Thursday raised its 2026 growth forecast for Europe's largest economy by half a percentage point, citing growing signs that it has passed the low point of its downturn and is regaining momentum.

The institute now expects gross domestic product to grow by 1.3% this year, up from a previous forecast of 0.8%, citing a noticeable acceleration in economic activity and improving business sentiment despite geopolitical headwinds.

However, it warned that the recovery remains on shaky ground, with risks stemming from the Iran war and fiscal stimulus set to fade in coming years.

For 2027, the institute left its previous forecast for 1.0% growth unchanged. It expects only 0.5% growth in 2028.

Germany's weak performance in recent years had been driven in large part by structural factors that will continue to weigh on activity, said the institute.

While export growth is expected to resume after sharp declines in previous years, deteriorating competitiveness is likely to lead to further losses in global market share.

Given the challenges facing the business location, private investment activity is expected to remain subdued, it added.

(Reporting by Miranda Murray, Editing by Friederike Heine)