BERLIN, Dec 17 (Reuters) – Germany’s economy will next year experience its first domestically-driven recovery since reunification, breaking with decades of export-led growth, a forecast by the Macroeconomic Policy Institute IMK showed on Wednesday.
The institute projected GDP growth of 1.2% in 2026, up from a meagre 0.1% this year. The recovery will be fuelled by government investment and rising private consumption rather than foreign trade, which remains weak, it said.
Three German economic institutes cut their growth forecasts for Europe’s biggest economy last week.
IMK director Sebastian Dullien cited U.S. tariffs, weak Chinese demand, and euro appreciation as headwinds constraining Germany’s foreign trade.
“After four years of weak growth, the supporting factors are now gaining the upper hand,” Dullien said, pointing to solid wage growth and increased public investment as key drivers.
However, a labour market improvement will lag the recovery. The unemployment rate is forecast to rise to 6.3% in 2025 from 6.0% in 2024 and remain at that level through 2026.
The government’s investment programs are projected to push the budget deficit to 3.3% of GDP in 2026, above the euro zone’s 3% threshold.
The deficit for 2025 is forecast at 2.5%, according to IMK, still within EU limits.
(Reporting by Maria Martinez and Klaus LauerEditing by Madeline Chambers)