The German Bundesbank has published a new Germany forecast that expects the war in the Middle East to weigh on the economy and temporarily interrupt the recovery that began over the winter half-year, while expansive fiscal policy prevents an output decline in the summer half-year by broadly offsetting that shock. Over the full forecast horizon to 2028, it expects growth to regain momentum as energy prices fall back, the global economy strengthens and fiscal support remains strong. Calendar-adjusted real gross domestic product is projected to grow by 0.5 percent in 2026, 0.8 percent in 2027 and 1.4 percent in 2028. The forecast points to higher inflation in the near term as the energy price shock feeds through directly into household energy costs and indirectly through channels such as transport costs. Harmonised Index of Consumer Prices inflation is projected at 2.9 percent in 2026, easing only slightly to 2.7 percent in 2027 before falling to 1.9 percent in 2028. The Bundesbank also expects core inflation excluding energy and food to rise with the shock and remain relatively high at 2.3 percent in 2028, driven mainly by the cyclical recovery and another stronger push from unit labour costs. It estimates potential output growth at only 0.3 percent to 0.4 percent a year over the forecast period because structural constraints including demographic pressure on skilled labour supply and labour-related non-wage costs continue to weigh on the economy. The Bundesbank said uncertainty around the forecast is particularly high because of the geopolitical situation. If energy prices rise more sharply than assumed, inflation could increase further while growth would be damped significantly. It also expects Germany’s public deficit and debt ratios to rise markedly, with the deficit reaching 4.9 percent in 2028 and the Maastricht debt ratio climbing to almost 70 percent, reflecting higher defence and non-military investment spending as well as tax relief and transfers.
German Bundesbank2026-06-12
German Bundesbank forecasts 2.9 percent inflation in 2026 and says fiscal expansion will offset the war shock to growth
The German Bundesbank’s new Germany forecast says expansive fiscal policy will broadly offset the drag from the war in the Middle East and support a gradual recovery through 2028. It projects calendar-adjusted real GDP growth of 0.5 percent in 2026, 0.8 percent in 2027 and 1.4 percent in 2028, while HICP inflation rises to 2.9 percent in 2026 before easing to 1.9 percent in 2028. The forecast also points to higher public deficits and debt and warns that further energy price increases would worsen both inflation and growth.