Finance
German Institutes Cut 2026, 2027 Growth Forecasts, Raise Inflation Outlook
Published by Global Banking & Finance Review®
Posted on April 1, 2026
3 min readLast updated: April 1, 2026
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Germany’s five major economic institutes have sharply downgraded growth forecasts for 2026 (to 0.6% from 1.3%) and 2027 (to 0.9% from 1.4%), while raising inflation expectations to 2.8% and 2.9%, respectively, citing fallout from the Iran war and surging energy costs.
German institutes cut 2026, 2027 growth forecasts, raise inflation outlook
By Maria Martinez
Germany's Economic Outlook and Inflation Forecasts
BERLIN, April 1 (Reuters) - Germany's leading economic institutes cut their growth forecasts for this year and next on Wednesday and sharply raised their forecasts for inflation as the Iran war causes oil and gas prices to surge.
Revised Growth and Inflation Projections
The five institutes slashed their joint 2026 economic growth forecast to 0.6% from the 1.3% projected in September and lowered their 2027 growth outlook to 0.9% from a prior estimate of 1.4%, as Reuters had reported on Tuesday.
Inflation Rate Adjustments
They forecast inflation would be 2.8% in 2026 and 2.9% in 2027, up from previous projections of 2.0% and 2.3% respectively.
Impact of Fiscal Policy and Energy Prices
Fiscal Policy Cushions the Shock
FISCAL POLICY CUSHIONS THE SHOCK
"The energy price shock triggered by the Iran war is hitting the recovery hard, but at the same time expansionary fiscal policy is bolstering the domestic economy and preventing a stronger slide," said Timo Wollmershaeuser, head of forecasts at the Ifo institute.
Oil and Gas Price Surge
A spike in oil and gas prices following the start on February 28 of the U.S.-Israeli war on Iran has already helped push German inflation to 2.8% in March.
Germany's lower house of parliament approved initial measures to curb surging fuel prices last Thursday.
Policy Recommendations and Government Response
The economic institutes argued on Wednesday against government intervention to lower energy prices in the short term, saying it would nullify important market signals, advocating instead for targeted social compensation measures.
Last year, Germany's parliament approved plans for a massive increase in government spending, throwing off decades of fiscal conservatism in the hope of reviving economic growth and scaling up military spending.
Challenges Facing the German Economy
Industry and Competitiveness Issues
But the institutes said in Wednesday's report that industry is hampered by a barely expanding international business, reflecting declining competitiveness, high geopolitical uncertainty and trade policy burdens.
Structural Economic Concerns
Europe's largest economy has struggled to regain momentum since the COVID-19 pandemic, with rising competition from China and higher energy prices - even before the current spike - challenging its export-driven economic model.
Role of Economic Institutes
The economic institutes' forecasts feed into government economic planning, including tax revenue projections.
The report is a joint effort by five prominent economic institutes - RWI in Essen, the Ifo institute in Munich, IfW in Kiel, IWH in Halle and DIW in Berlin.
(Reporting by Maria MartinezEditing by Madeline Chambers and Catherine Evans)
Key Takeaways
- •Growth forecasts slashed from 1.3% to 0.6% (2026) and from 1.4% to 0.9% (2027), underscoring deepening economic headwinds. (ctmfile.com)
- •Inflation outlook significantly raised – projected at 2.8% in 2026 and 2.9% in 2027, up from previous 2.0% and 2.3%, reflecting energy-driven pressures. (ctmfile.com)
- •The downward revisions feed into federal economic planning, impacting tax revenue, fiscal policy, and highlight Germany’s vulnerability tied to energy dependence amid geopolitical tensions. (apnews.com)
References
Frequently Asked Questions about German institutes cut 2026, 2027 growth forecasts, raise inflation outlook
1Which institutes contributed to the economic report?
The report was a joint effort by RWI, Ifo, IfW, IWH, and DIW, five leading German economic institutes.
2How has the Iran war affected Germany's economic outlook?
The Iran war has triggered a surge in energy prices, further threatening Germany's economic recovery and influencing both growth and inflation forecasts.