Germany’s economy could grow by around 1% this year, roughly twice the rate previously forecast by the Bundesbank, as exports and higher public spending support a stronger than expected recovery.
Bundesbank president Joachim Nagel has indicated that growth is running substantially ahead of the central bank’s earlier projections. Its June forecast had pointed to expansion of about 0.5% in 2026 after several years in which Europe’s largest economy struggled to generate sustained growth.
The improvement has been supported by exports and a more expansionary fiscal policy. German government spending on infrastructure, defence and climate investment is beginning to reach the economy, while external demand has remained more resilient than some earlier forecasts suggested.
Official figures also showed stronger momentum during the first half, with second quarter growth revised to 0.3%. That supports the view that the economy has moved beyond the prolonged stagnation that affected industry, investment and business confidence.
The recovery remains uneven because German companies continue to face elevated energy prices and disruption linked to the Middle East conflict. Private investment has also remained cautious despite stronger government demand, limiting the extent to which fiscal spending has translated into broader corporate expansion.
Those weaknesses are important because Germany’s previous slowdown was not purely cyclical. Manufacturers have been dealing with higher energy costs, increasing Chinese competition, ageing infrastructure and a difficult transition in sectors including automotive production. Public spending can support demand, but longer term growth still depends on stronger private investment and productivity.
A healthier German economy would improve conditions across Europe because the country is deeply integrated into regional supply chains and remains a major customer for exporters in neighbouring markets. Stronger domestic demand can therefore benefit suppliers and service companies well beyond Germany itself.
UK companies have a similar interest. Germany remains one of Britain’s largest trading partners, particularly for machinery, vehicles, chemicals, business services and other high value goods. A sustained increase in investment and consumer demand would create a more favourable environment for British exporters.
The improved outlook also complicates monetary policy. Eurozone inflation increased to an estimated 3.8% in September, and stronger growth reduces some of the argument for keeping borrowing costs lower. If economic activity strengthens while inflation remains persistent, the European Central Bank may feel greater pressure to maintain restrictive policy.
Nagel’s assessment is not yet a formal replacement for the Bundesbank’s full forecast, and new projections could change as energy prices and geopolitical conditions develop. The remarks therefore indicate that the economy is outperforming previous expectations rather than guaranteeing 1% growth.
After several years in which Germany became one of Europe’s principal economic concerns, even moderate expansion changes the regional outlook. The next test is whether stronger exports and public spending encourage companies to invest again, turning a cyclical recovery into a broader improvement in competitiveness.
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