Germany’s leading economic institutes raised their growth forecasts for Europe’s largest economy to 1.3% for 2026, from 0.6%, and to 1.1% for 2027, from 0.9%. They expect growth to slow to 0.4% in 2028 as demographic change shrinks the labor force and structural constraints reduce potential growth. The economy has been recovering since the end of 2025, but the rebound remains modest and temporarily slowed in the third quarter. Oliver Holtemoeller at the Halle Institute for Economic Research said activity had proved more robust than expected, while high energy prices and structural problems continued to weigh on the recovery. The institutes forecast inflation at 2.8% in 2026 and 3.2% in 2027, before easing to 2.0% in 2028. Employment is expected to decline further in the near term, while the unemployment rate is forecast to fall from 6.4% in 2026 to 6.2% in 2027 and 5.8% in 2028. Improving sentiment indicators have contrasted with weaker hard economic data. The outlook was jointly prepared by RWI in Essen, the Ifo institute in Munich, IfW in Kiel, IWH in Halle and DIW in Berlin, confirming a Reuters report from Tuesday.