Germany’s Economy May Grow 1% in 2026 as Recovery Gains Pace

Germany’s economy could expand by about 1% in 2026 as government spending and foreign demand support a recovery from three years of stagnation, Deutsche Bundesbank President Joachim Nagel said.

“We may well see real economic growth of around 1% on annual average,” Nagel said in a speech delivered in Rostock on Oct. 2 and published in English Oct. 7.

Germany’s gross domestic product increased 0.4% quarter over quarter in the first quarter of 2026 and 0.3% in the second quarter. The second-quarter figure was revised up from an earlier 0.2% estimate.

Nagel said debt-financed government spending on defense, infrastructure and climate protection, along with strong foreign demand, is supporting the recovery.

“One driver of economic activity is the Federal Government’s fiscal package,” he said.

The stronger near-term outlook does not indicate a comparable improvement in Germany’s underlying growth capacity. Nagel estimated potential growth at only 0.4% in 2026, reflecting the pace at which the economy can expand without creating lasting imbalances.

The Bundesbank president pointed to the retirement of baby boomers and the resulting labor shortages as major constraints. Weak corporate investment and barely rising productivity are also limiting the economy’s longer-term expansion.

Nagel’s 1% assessment is above the Bundesbank’s June projection of 0.5% calendar-adjusted real GDP growth and 0.7% growth without the calendar adjustment. His speech did not give a formal probability or confidence range for the newer estimate.

The contrast between the two figures highlights the difference between a short-term rebound and potential growth. Germany may post stronger output growth in 2026 as fiscal support and exports lift activity, while its productive capacity expands much more slowly.

Nagel’s comments come as Germany’s economy begins to show quarterly growth after a prolonged period of weakness. The latest second-quarter result provides the most recent measure of that recovery, while the structural limits he identified will continue to shape the country’s outlook beyond 2026.