German Economic Growth Forecasts Cut Amid Energy Price Volatility

The IMK now expects gross domestic product to expand by 0.6% in 2026 and 0.9% in 2027, marking significant downward revisions of 0.3 and 0.7 percentage points from its March outlook. These figures hinge on the assumption that the regional conflict remains contained and that energy shipments through the Strait of Hormuz stabilize without further damage to Gulf infrastructure.

Sebastian Dullien, director of the institute, characterized the economic toll as significant yet manageable provided the hostilities do not persist for an extended duration. Meanwhile, inflationary pressures remain a concern, with averages projected at 2.8% for 2026 before cooling to 2.3% the following year. While higher energy costs continue to suppress private spending, the institute anticipates that increased public investment will provide a necessary buffer for growth in 2027. Addressing the policy landscape, the IMK cautioned the European Central Bank against aggressive interest rate hikes, arguing that a recession triggered by monetary tightening would be counterproductive while the energy shock remains transitory.