Iran war will slow German economic recovery slightly, say institutes

(Sharecast News) - The spike in oil prices will hit Germany's economic recovery, but only slightly if the war on Iran is not prolonged, three economic organisations said on Thursday.

Europe's biggest economy should grow 0.8% this year, the Ifo said, in line with its forecast in December, although it pointed out that this would have been lifted to 1% except for the conflict. It also expects 2027 growth of 1.2%.

"Despite the energy price shock, the recovery in Germany is likely to continue throughout this year," said Ifo head of forecasts Timo Wollmershaeuser, adding that higher spending on infrastructure and defence would stimulate demand.

However, if oil and gas prices elevated over the long term, the economy will grow by only 0.6% this year as inflation would be expected to peak at just under 3%, the Ifo said, with the knock-on effect spilling over into next year with growth of just 0.8%.

Meanwhile, the IfW institute lowered its 2026 forecast - also made in December - by 0.2 percentage points, to 0.8%. It lifted its growth estimate for next year to growth of 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%.

"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 Frank Prenesti for Sharecast.com