The Resilience of the Economy and Financial Markets Put to the Test Again in 2026

Which factors will significantly shape economic developments in 2026 was outlined by Jürgen Michels, Chief Economist of BayernLB, at the annual kickoff event of BayBG in Munich.

The global economy is expected to grow only moderately in the coming year. U.S. tariff policy and ongoing geopolitical developments continue to weigh on global economic activity. In Europe, fiscal programs are providing short-term support to growth, but at the same time they are contributing to rising debt levels. As a result, risks to financial market stability are increasing.

A comparatively positive outlook emerges for Germany. After narrowly avoiding another recession in 2025 with growth of +0.2 percent, GDP is forecast to increase by around +1 percent in 2026. Germany is therefore no longer considered the “laggard” of the euro area.

Particularly noteworthy is Michels’ expansion of the well-known four structural “D’s” – demographic change, digitalization, decarbonization and deglobalization – by two additional factors that he sees as having a significant impact on medium-term developments: Defence and Debt.

While rising defence spending may generate growth impulses, for example through higher security expenditures including investments in traditional defence, cybersecurity and space, as well as the expansion of production capacities, increasing debt levels restrict fiscal policy flexibility and heighten the risk of a new financial crisis.

Further assessments and analyses by Jürgen Michels are available on the research page of BayernLB.