German savings banks group forecasts 1% GDP growth in 2026

• Public financing for infrastructure, climate, and defense is expected to contribute 0.4 percentage points to 2026 growth, rising to 0.5 percentage points in 2027
• DSGV President Ulrich Reuter characterized 2026 as a potential turning point and urged Germany to pursue new trade partnerships amid widening global tensions
• The association supports the Mercosur trade deal as critical for creating a free-trade area of over 700 million people, warning failure would be a 'bitter blow'

Summary: German Savings Banks Forecast 1% GDP Growth in 2026

Germany's savings banks association (DSGV) projects the country's economy will achieve 1% GDP growth in 2026, marking a modest recovery after three years of stagnation. DSGV President Ulrich Reuter characterized this as a "moderate upswing" but cautioned that the recovery "remains fragile."

Key Growth Drivers

Government fiscal stimulus is expected to play a significant role in the recovery. Timo Plaga, chief economist at Sparkasse Hannover, estimates that public financing for infrastructure, climate initiatives, and increased defense spending will contribute:

• 0.4 percentage points to 2026 growth
• Approximately 0.5 percentage points to 2027 growth

These fiscal measures are already showing early positive effects on the economy.

Strategic Outlook

Reuter identified 2026 as a potential "turning point" for Germany amid escalating global tensions. He emphasized the need for Germany to develop new international partnerships, specifically highlighting the Mercosur trade deal as critical. The agreement would create a free-trade area encompassing over 700 million people. Reuter warned that failure to implement the deal would represent a "bitter blow" to Germany's economic prospects and advocated for provisional application of the agreement.

Market Implications

The forecast suggests Germany is beginning to emerge from an extended period of economic weakness, though the pace remains subdued. The reliance on government spending for growth raises questions about sustainability once fiscal stimulus moderates. For investors, the outlook indicates continued challenges in Europe's largest economy, with trade policy becoming increasingly important for future growth prospects.