German Institutes Cut 2026 Growth to 0.6% on Iran War Energy Shock

Germany's leading economic institutes sharply reduced their growth projections for 2026 and 2027 on Wednesday, citing surging oil and gas prices triggered by the ongoing war in Iran that began on February 28. The joint report from five prominent research bodies forecasts gross domestic product expansion of just 0.6 percent this year, down from the 1.3 percent anticipated in September, and 0.9 percent in 2027, a drop from the earlier 1.4 percent estimate. Inflation expectations also rose significantly, to 2.8 percent for 2026 and 2.9 percent for 2027, compared with prior figures of 2.0 percent and 2.3 percent.

The revised outlook reflects the severe impact of the U.S.-Israeli conflict on energy markets, which has driven up costs and already pushed German inflation to 2.8 percent in March, its highest level in more than a year. "The energy price shock triggered by the Iran war is hitting the recovery hard," said Timo Wollmershaeuser, head of forecasts at the Ifo Institute in Munich, one of the participating organizations. "But at the same time, expansionary fiscal policy is bolstering the domestic economy and preventing a stronger slide."

The institutes, which include the RWI in...