The consequences of the Iran war are significantly diminishing German economic performance this year, according to estimates from the German Economic Institute (IW). Instead of the 0.9 percent growth projected in December, the gross domestic product (GDP) will likely increase by only 0.4 percent in 2026, as the IW announced Thursday in Cologne. The hoped-for recovery after three years of recession and stagnation is thus "once again failing to materialize."
As the IW elaborated, German exports are expected to fall by 0.3 percent in 2026 according to the current economic forecast, marking the fourth consecutive year of decline. At the same time, private consumption is also failing to gain momentum this year. "Rising energy and food prices are driving inflation to just over three percent and depriving households of purchasing power," the institute explained.
"The crises are hitting the German economy faster than it can recover," stated IW economic expert Michael Grömling. Nevertheless, he argued it would be misguided for policymakers to suggest that fuel rebates could compensate for the inevitable losses in prosperity. The government must "focus on what it can influence" - improvements are needed in competitiveness and investment conditions for businesses, Grömling emphasized.
Overall, the forecast is "subject to high uncertainty," according to the IW. The actual impacts also depend on the duration of the conflict, the institute noted. The federal government currently expects GDP growth of 0.5 percent for the current year according to its spring projection from April - at the end of January, it had still assumed 1.0 percent growth.
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