Finance
Germany's ifo warns prolonged energy spike could trim 2026 economic growth to 0.6%
Published by Global Banking & Finance Review®
Posted on March 12, 2026
2 min readLast updated: March 12, 2026
Quick Summary
Germany’s Ifo Institute cautions that if energy prices driven by the Iran war remain elevated for an extended period, its 2026 growth forecast could slide to 0.6%, from the baseline 0.8%, with knock‑on effects into 2027.
German economic recovery to slow only slightly due to Iran war, economists say
Impact of Iran War on German Economic Recovery
By Miranda Murray
BERLIN, March 12 (Reuters) - Germany's economic recovery will slow only slightly this year as long as energy prices driven up by the Iran war ease in the coming months, said three institutes on Thursday.
Growth Forecasts from Economic Institutes
The Ifo institute expects economic growth of 0.8% this year, on the assumption that oil and gas prices will remain high only in the short term, in line with its forecast in December. It sees German economic growth accelerating to 1.2% next year.
Europe's biggest economy expanded in 2025 for the first time in three years, growing by 0.2%, as consumer sentiment improved, helped by a government spending surge.
Recovery Despite Energy Price Shock
RECOVERY DESPITE SHOCK
"Despite the energy price shock, the recovery in Germany is likely to continue throughout this year," Ifo's head of forecasts, Timo Wollmershaeuser, said.
He pointed to increased government spending on infrastructure, carbon neutrality and defence as stimulating demand.
Without the U.S.-Israeli war with Iran, Ifo said it would have raised the 2026 forecast to 1.0%.
Risks from Prolonged High Energy Prices
However, if oil and gas prices remain high for longer, Germany's economy will grow by only 0.6% in 2026 as inflation would be expected to peak at just under 3%, the institute said.
The effect would carry over into 2027, with growth of just 0.8%.
Short-Term Rise in Commodity Prices
SHORT-TERM RISE IN COMMODITY PRICES
The IfW institute lowered its 2026 forecast made in December by 0.2 percentage points, to 0.8%, on the assumption that commodity prices will remain elevated for only a few months.
The economy will slowly regain its footing over the course of the year, said IfW, which raised its growth forecast for next year to 1.4% from 1.3% previously.
The RWI institute revised down its forecast for this year by 0.1 points to 0.9% and slashed its 2027 outlook by 0.2 points to 1.2%.
Ongoing Vulnerabilities and Inflation Outlook
"The Iran war demonstrates how vulnerable the German economy remains due to its energy dependencies," said RWI forecasting head Torsten Schmidt.
All three institutes see inflation rising to at least 2.5% this year before easing again in 2027.
(Reporting by Miranda Murray; Editing by Thomas Seythal and Susan Fenton)
Key Takeaways
- •Ifo sees 2026 growth at 0.8% under short‑lived energy spike; prolonged high prices cut that to 0.6% and lift inflation near 3%
- •Government spending on infrastructure, carbon neutrality and defence supports demand, cushioning the impact
- •Other institutes, like IW, estimate similar GDP losses (~0.3–0.6 pp) from oil price surges linked to the Iran conflict
References
Frequently Asked Questions about Germany's Ifo warns prolonged energy spike could trim 2026 economic growth to 0.6%
1How could prolonged high energy prices affect Germany's economic growth?
If energy prices remain elevated, Germany's growth rate could fall to 0.6% in 2026, according to the Ifo institute.
2What factors support Germany's economic recovery despite the energy price shock?
Government spending on infrastructure, carbon neutrality, and defense are helping stimulate demand.
3What is the expected inflation rate if energy prices stay high?
Inflation in Germany would be expected to peak at just under 3% if energy prices remain high.
4Which years would see reduced growth due to high energy prices, according to Ifo?
Growth could drop to 0.6% in 2026 and only reach 0.8% in 2027 if high prices persist.
