Leading German institutes slash 2026 growth forecast to 0.6% and warn of rising inflation due to energy price shocks from the Middle East war.
BERLIN: Leading economic institutes have significantly downgraded Germany’s growth forecast for 2026, citing the severe impact of the Middle East conflict on energy prices and inflation.
The seven institutes now predict Europe’s largest economy will grow by just 0.6% this year, a sharp reduction from their September forecast of 1.3%.
They also warned that inflation is expected to rise to 2.8%, up from a previous estimate of 2.0%, as a direct consequence of the war.
“The energy price shock triggered by the Iran war is hitting the recovery hard,” said economist Timo Wollmershaeuser of the Ifo institute.
Wollmershaeuser added that increased government spending was nevertheless “preventing a stronger slide” in economic performance.
Oil and natural gas prices have surged dramatically since the end of February, when the United States and Israel attacked Iran, killed its supreme leader and plunged the region into war.
Iran has since closed the Strait of Hormuz to ships from countries it considers allied with the US and Israel, effectively blocking a vital sea lane that normally transports about a fifth of the world’s oil and gas trade.
The institutes stated that higher inflation in Germany would severely hit consumer spending, further weighing on an already weak economy.
Germany’s economy has barely grown since a brief burst of pent-up demand following the Covid pandemic in 2022.
