Institute raises German growth forecast for 2026 in anticipation of spending boom

FRANKFURT, March 13 (Reuters) - Germany's IfW economic institute raised its 2026 growth estimate for Europe's largest economy on Thursday, anticipating tailwinds from a public spending boost that conservative election winner Friedrich Merz is pushing for.

IfW, one of Germany's main economic forecasters, said next year's gross domestic product would likely increase by 1.5%, up from IfW's December forecast of 0.9%.

It also confirmed its previous projection for Germany's economy to stagnate in 2025, saying its structural problems would not let up in the short term amid international competition and the threat of tariffs.

In a bid to boost defence and infrastructure investments, the nation's likely next chancellor Merz of the conservative CDU/CSU party bloc is in a race against time to secure support from other parties for a massive increase in state borrowing.

He has initial backing from the Social Democrats (SPD) but needs to persuade other lawmakers in the outgoing parliament.

"In our projection for next year, we are factoring in that plans agreed in explorative talks between the conservatives and the SPD will already be partially implemented and that fiscal policy will take a significantly more expansive direction," IfW said.