German Economy Forecast: IfW Maintains 0.8% Growth for 2026, Cuts 2027 Outlook

Kiel. The Kiel Institute for the World Economy (IfW) remains with its economic forecast for the German economy despite the effects of the war in the Middle East. The experts continue to expect gross domestic product to increase by 0.8 percent in the current year, as the institute announced. However, for 2027, the experts have trimmed their forecast from a previous 1.4 percent to now 1.0 percent.

"The consequences of the Iran war are dampening economic performance," said IfW President Moritz Schularick. "The rise in commodity prices is proving to be persistent, which will burden economic dynamism well into the coming year." The Leibniz Institute for Economic Research Halle (IWH) also comes to a similar assessment.

According to the summer forecast of the Kiel-based institute, financial policy is providing expansive impulses on the one hand, but the consequences of the Iran war are slowing down economic dynamism on the other. While there are still few signs of a strong recovery in exports and business investment, as has been characteristic of previous recovery phases, public consumption and investment spending are likely to pick up, above all. In contrast, the experts continue to expect little investment from the economy and significantly clouded employment prospects.

Although exports from the German economy have stabilized recently, the institute writes. However, after the declines of recent years, there is still no talk of a dynamic recovery.

"The declining competitiveness of the German economy will lead to further losses in world market share," said economic expert Stefan Kooths. "Measured against previous upswings, the expected growth is meager. Without far-reaching location-strengthening reforms, the German economy is drifting into a phase of flagging growth forces with intensifying distribution conflicts."

Whether the German economy will pick up speed again in the coming months also depends crucially on the conflict in the Gulf region, according to the IWH's assessment. If the situation there remains tense and energy prices continue to rise, economic performance could stagnate in the worst case in 2026. "The main risk for the world economy as well as for the German economy lies in the uncertain progress of the Gulf conflict," said IWH Vice President Oliver Holtemöller at the presentation of the economic forecast in Halle.

In their forecast, the researchers assume, on the other hand, that the situation will ease. In this case, they expect growth of 0.9 percent each for 2026 and 2027.

According to the researchers' assessment, the conflict in the Gulf region has already caused energy prices to rise significantly. This makes production more expensive for many companies and burdens the purchasing power of private households at the same time. The fact that the economy is not threatening to collapse is also due to government spending and investment programs. In addition, the researchers expect exports to increase slightly again after three years of decline. Private consumption spending is also likely to rise.