Anticipated Boost in Business for German Companies in 2026, According to DIW Projections

The German economy is expected to grow by 1.7% in 2022, according to the German Institute for Economic Research (DIW). However, this growth may be affected by the trade policy of US President Donald Trump, which has proven to be a brake on the German economy. The uncertainty caused by this trade policy has ended with the trade agreement between the US government and the EU.

Several leading German economic research institutes, including the ifo Institute, the Institute for the World Economy (IfW Kiel), the German Institute for Economic Research (DIW Berlin), and the Institute of the German Economy (IW), have demanded reform-intensive changes to the tax system and social security. The DIW has proposed measures such as reducing the tax burden on small and medium incomes and reforming social contributions to increase incentives for work and support economic competitiveness.

The new federal government has so far refused to address these issues and overcome conflicts within the coalition, according to DIW. DIW President Marcel Fratzscher calls for fundamental reforms in the tax and social security systems. The institute sets four priorities to advance reforms: reduction in spending, reduction in interest-driven subsidies, abolition of tax privileges, and a long-term increase in taxes.

Other leading economic institutes also anticipate the German economy to regain momentum in 2026. The Munich ifo Institute expects growth of 1.3% for the German economy in 2022, while the DIW expects the German economy to grow by 1.8% in 2027. The federal government's planned investments in infrastructure, climate protection, and defense are contributing to the economy.

The Berlin-based economic experts attribute the driving force behind the economy to the political impulses of the federal government. The federal government is also providing incentives for private investments. However, the German economy's traditional growth driver of foreign trade is "noticeably constrained by increasing trade barriers and US trade policy," according to DIW.

Climate-damaging subsidies amount to around 60 billion euros annually, according to the International Monetary Fund. The DIW lowers its outlook for the current year 2025 and now expects only a growth of 0.2 percent. The Kiel IfW even expects a minimal growth of 0.1 percent for the year 2025. Despite this, even a low growth in 2025 would end the long economic drought with two consecutive years of recession.

The first half of the year 2025 was bumpy, according to DIW. The uncertainty caused by the trade policy of US President Donald Trump may have played a role in this. However, with the trade agreement between the US government and the EU, there is hope for a more stable economic environment in the future.

In conclusion, while the German economy is expected to grow in the coming years, there are challenges that need to be addressed. Structural reforms, such as those proposed by the DIW and other institutes, are crucial for sustainable economic growth. The federal government must take action to overcome conflicts within the coalition and implement these reforms to ensure the long-term success of the German economy.

Anticipated Boost in Business for German Companies in 2026, According to DIW Projections