Ifo lifts German growth forecasts as fiscal boost offsets energy shock

By Maria Martinez

BERLIN, Sept 3 (Reuters) - Germany's Ifo economic institute raised its growth forecasts for Europe's largest economy on Thursday, saying stronger fiscal spending, improving industrial orders and export demand were outweighing the drag from higher energy prices.

Ifo now expects German gross domestic product to grow by 1.4% in 2026 and 1.2% in 2027, up from forecasts of 0.8% in both years in its summer outlook.

It sees growth slowing to 0.8% in 2028.

The institute said revised official data, including a stronger-than-expected start to 2026, accounted for part of the upgrade: economic output rose 0.3% in the second quarter, while Ifo had previously expected stagnation following an energy-price shock.

Government spending on infrastructure, climate neutrality and defence will provide fiscal stimulus worth nearly €40 billion ($46.36 billion), or 0.8% of GDP, this year, Ifo said.

Industrial production and exports are also expected to support the recovery, helped by robust global demand, especially in Europe.

However, Ifo said higher energy prices linked to the Iran war would keep household consumption subdued and push inflation to 2.8% this year and 3.0% in 2027, before easing to 2.3% in 2028.

($1 = 0.8627 euros)

(Reporting by Maria MartinezEditing by Linda Pasquini)