Germany cuts growth forecasts, citing trade uncertainty and slow rollout of reforms

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German GDP growth in 2026 forecast at 1.0%, down from 1.3%

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Growth in 2027 seen at 1.3%, down from 1.4%

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Fiscal stimulus expected to contribute significantly to 2026 GDP growth

(Adds minister on trade in paragraphs 5-6, impact on borrowing 13-17)

By Maria Martinez

BERLIN, Jan 28 (Reuters) - Germany lowered its growth forecasts for this and next year in Europe's biggest economy, citing heightened uncertainty around global trade and the fact that economic ?and fiscal-policy measures have not taken effect as quickly as previously assumed.

The government trimmed its growth forecast for 2026 to 1.0% from 1.3%, confirming a report by ?Reuters last week. GDP growth in 2027 is seen at 1.3%, down from 1.4% expected previously.

"The background to ?this slightly more cautious assessment is the fact that the larger economic and fiscal policy ?measures that had been expected ?have not materialised quite as quickly and not to the extent that we had assumed," German Economy Minister Katherina Reiche said on Wednesday in the presentation of ?the forecasts.

GERMANY SEEN LOSING EXPORT MARKET SHARE AGAIN

Reiche also pointed ?to economic conditions remaining very difficult for Germany's export-oriented economy, as U.S. tariff increases from last year continue to weigh on the world economy.

"The outlook has, if anything, structurally worsened," Reiche said.

The economy ?ministry said in its annual economic report that Germany ?was likely to ?lose global market share again, although it said that following three years of declines in exports, they are expected to grow 0.8%.

However, despite the minister's somewhat downbeat comments, the new forecasts are still significantly higher ?than the 0.2% expansion recorded in 2025, which followed two consecutive years of contraction.

The ministry said the recovery was supported by stronger domestic momentum.

In 2026, fiscal policy measures on their own are expected to contribute around two-thirds of a percentage point to GDP growth, according to the ministry's report.

But while the national parliament approved a landmark 500 billion euro ($600 billion) special fund for infrastructure in March, by the end of the year only 24 billion euros had been invested, reflecting the ?slow pace ?of decision-making in Germany's federal system.

Economists and business groups warn the fiscal package alone will not be enough to deliver sustainable growth and have called for bolder structural reforms.

ADDITIONAL BORROWING ALLOWED

While public spending will drive ?growth, private consumption is expected to grow by only 0.8% in 2026 - down from 1.4% growth in 2025. The report assumed the savings rate was unchanged at around 10.5% of household income.

The lower growth forecasts will also have an impact on borrowing.

Under the cyclical component of Germany's constitutionally enshrined borrowing limits, the government can borrow more when economic development is weaker than initially predicted.

Thanks to the downgrade in the forecasts, the cyclical component will allow additional borrowing of 16.5 billion euros instead of 15.6 billion euros in the core budget ?for 2026.

The core budget envisages borrowing of 97.9 billion euros, but adding borrowing through the special funds for infrastructure and defence, total new debt will be well over 180 billion euros.

In 2027, the leeway will increase by 1.1 billion euros to 9.6 billion euros thanks to the cyclical component. ($1 = 0.8356 ?euros) (Reporting by Maria Martinez; Additional reporting by Christian Kraemer and Holger Hansen; Editing by Madeline Chambers, Miranda Murray and Alison Williams)