German economy to grow slowly in 2026 as Iran war dampen recovery

ISTANBUL

The German economy is expected to see a dampened recovery in 2026 due to the economic fallout from the war in Iran, according to the IFO Institute’s spring forecast on Thursday.

The institute revised its growth projection for the current year to 0.8%, citing increased energy costs and heightened uncertainty in international trade.

Consumer price inflation is anticipated to remain sticky at around 2.1% for 2026 as supply chain disruptions from the Middle East affect domestic prices.

Private consumption, previously expected to be the main driver of recovery, is now projected to grow at a slower pace than initially forecast.

Investment in the manufacturing sector remains cautious as companies navigate the volatility in global markets.

The export-oriented German industry faces additional hurdles from weakened demand in key international markets.

Labor market conditions are expected to stay relatively stable, though high energy prices continue to pressure energy-intensive industries.

IFO economists noted that the duration and intensity of the conflict will be decisive for Germany’s economic performance in the second half of the year.