German economy faces tepid growth in 2026 due to global trade slowdown

Germany's economic recovery will remain subdued next year as exports struggle and global trade slows, according to a forecast by the German Economic Institute IW seen by Reuters.

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The IW forecasts Germany's real gross domestic product to grow only slightly this year, by 0.1% after two years of contraction, before hitting 0.9% next year, marking a notable increase.

Germany is "emerging somewhat from its state of shock," IW chief economist Michael Groemling said.

However, about a third of this growth will be due to a calendar effect, with nearly two-and-a-half more working days available than in 2025, according to the IW. Germany's economy ministry in October revised up its 2025 forecast to 0.2 per cent growth and it expects 1.3 per cent growth in 2026.

The tax and social contribution rate in Germany will reach a record 41.5 per cent of gross domestic product in 2025, up from 40.2 per cent last year, according to IW forecasts.

"Our economy is facing rising government financing burdens - even in economically weak times," Groemling said.

This is due to higher defence spending and investments in infrastructure, but also to rising social obligations for pensions, health insurance and unemployment insurance, Groemling said. The negative impact of US tariff policies and ongoing geopolitical tensions are increasingly evident worldwide: After a 4.5 per cent increase in 2025, world trade is expected to grow by only 1.5 per cent in 2026.