Will Germany become a developing country in the future?

The likelihood is very low. The long-term development of an economy primarily hinges on its ability to unleash human potential. While Germany may not be the planet’s absolute top destination for attracting global elite talent or nurturing genius, it remains among the leading nations in this regard. In recent years, Germany overly tied its economy to several authoritarian countries. When Russia invaded Ukraine, Germany immediately found itself severely constrained. To make matters worse, its largest export market—the United States—imposed tariffs on the EU in the first half of this year. Consequently, Germany has faced some struggles over the past few years. Yet Germany’s fundamentals remain solid. Over the past two years, it has pursued energy and market diversification, and U.S.–EU tariff negotiations reached a 15% agreement in July. According to various forecasts, Germany could resume growth as early as 2026 or 2027. OECD projects Germany’s growth at 0.4% in 2025 and 1.2% in 2026. Experts at the German central bank anticipate higher growth rates of 0.7% in 2026 and 1.2% in 2027. The German Ifo Institute forecasts real (inflation-adjusted) GDP growth of 0.2% for this year.

German think tank: Upgrading economic outlook amid robust export growth boosting economic expansion

Introduction: In late August, Germany’s second-quarter GDP growth rate was revised upward to 0.3%, up from the previously reported 0.2%. An economic research institute stated that strong exports and rising public investment have raised expectations for Germany’s economic growth this year. The Ifo Institute now forecasts GDP growth of 1.4% for 2026—up from 0.8% projected in its previous quarterly report issued in June. “Significant external momentum, coupled with increased German spending on infrastructure, climate initiatives, and defense, has helped prevent energy price shocks and low river water levels from triggering a more severe economic slowdown.” This growth also reflects an upward revision to the GDP growth forecast for 2026 to date. In late August, Germany’s Federal Statistical Office reported that second-quarter GDP growth stood at 0.3%, higher than the earlier figure of 0.2%, driven primarily by robust export growth—which partially offset the impact of surging energy costs triggered by the Iran war. In Q1, Germany’s GDP grew by 0.4%. The Ifo Institute noted that the dampening effect of energy price shocks on the economy now appears to be easing: “There is still some hope—even for the industrial sector, which has been severely hit by the crisis.” Official data show industrial output has risen over recent months. “Germany’s economy is recovering steadily,” the Ifo Institute now forecasts GDP growth of 1.2% for 2027—up from 0.8% projected in June—and 0.8% for 2028. Jens Weidmann, President of the Deutsche Bundesbank, stated that GDP growth this year is expected to reach approximately 1%, exceeding the central bank’s June forecast. The bank had previously warned that summer heatwaves would temporarily slow growth—especially as falling water levels in rivers such as the Rhine hampered inland shipping. Weidmann, a member of the European Central Bank’s Governing Council, is expected to vote next week on raising the benchmark interest rate by 0.25 percentage points. The Ifo Economic Institute forecasts inflation will rise to 3.0% next year and only return to the ECB’s 2% target by 2028. Germany’s consumer price index rose 2.9% year-on-year in July, compared to a 2.8% annual inflation rate in July. Although the ongoing Middle East conflict continues to push up energy costs, inflation rose this month—but less than expected. Despite persistently high energy costs, there are virtually no signs of broader price pressures across the economy. According to EU-harmonized data released by Germany’s Federal Statistical Office, the consumer price index rose 2.9% year-on-year in July—lower than the 2.8% annual inflation rate. This figure fell short of economists’ prior expectation of 3.2% in a Wall Street Journal survey. This increase stems from persistently high energy costs due to ongoing hostilities in the Middle East. After the preliminary ceasefire agreement between the U.S. and Iran in June, oil and natural gas prices declined, easing concerns about disruptions to energy shipments through the Strait of Hormuz. However, prices rebounded in recent months as hostilities escalated.

Bundesbank: German Economy to Regain Momentum by Year-End

Sep 21, 2026

The Bundesbank forecasts a slight Q3 slowdown before stronger recovery by year-end, noting persistent high energy prices continue to drive inflation above the ECB target.

bloomberg

2026-09-21

Bundesbank: German Economy to Regain Momentum by Year-End

Bundesbank: German Economy to Regain Momentum by Year-End

FAQ