German economy to gradually recover next year: Bundesbank

ISTANBUL

The German central bank (Bundesbank) stated Friday that it expects a gradual economic recovery in Germany next year, driven by increased public investment, rising wages, and growing exports.

"After multiple years of contraction, the Bundesbank expects the economy to gradually recover," the Bundesbank said in a statement.

Meanwhile, the central bank lowered its gross domestic product (GDP) growth forecast for next year from 0.7% to 0.6%. The bank projected growth rates of 1.3% for 2027 and 1.1% for 2028.

The bank's six-month economic forecast report stated that the German economy is expected to gradually recover after years of contraction and that increased public investment, rising wages, and export growth will support this recovery.

"There are already some initial signs of an increase in government orders. However, the expansionary spending stance will not bolster economic growth more significantly until later on next year," it noted.

The government's demand will rise dramatically as more money is spent on infrastructure and defense. The forecast for Germany showed that throughout the course of the upcoming year, exports will likewise experience an increase.

"In addition, investment in private residential construction will start to recover. Strongly rising wages and a gradual improvement in the labor market will underpin real income and thus consumption. With increased capacity utilization, businesses will also invest more again," the bank said.

Bundesbank President Joachim Nagel said that overall, growth will accelerate significantly in 2027.

"The German economy will make headway again in 2026: while progress will be subdued initially, it will then slowly pick up," Nagel said. "Starting in the second quarter of 2026, economic growth will strengthen markedly, driven mainly by government spending and a resurgence in exports."

- Inflation to be above 2%

The bank predicted that inflation will decline more slowly than previously estimated in the coming years, particularly due to strong wage growth in service sectors where economic and labor market conditions are robust and more limited declines in energy prices.

The Bundesbank revised its inflation expectations upwards compared to its June forecast. According to the report, EU-harmonized inflation is expected to fall to 2.2% next year. In June, the bank had projected an annual inflation rate of 1.5% for 2026.

The bank's inflation expectation for this year was raised from 2.2% to 2.3%. For 2027, the bank projected an annual inflation rate of 2.1%.

In November, Germany's annual inflation was at 2.3%, unchanged from the previous month.