By Ed Frankl
Germany's leading economic-research institutes more than halved their expectations for growth this year as the conflict in the Middle East hits energy markets.
The joint forecast made by five institutes, which include the Ifo Institute and the Kiel Institute for the World Economy, said gross domestic product is expected to grow 0.6% this year and 0.9% in 2027, down from 1.3% and 1.4% previously forecast in September.
The forecasts are based on assumptions that the Strait of Hormuz shipping route will be open again in the second quarter of 2026 and that oil-and-gas exports will return to their pre-war levels from the second half of the year onward.
However, there will also be a boost to the economy from Germany's planned fiscal stimulus, which promises to invest more than $1 trillion in defense and infrastructure projects.
"The energy-price shock triggered by the Iran war is hitting the recovery hard, but at the same time expansionary fiscal policy is bolstering the domestic economy and preventing a stronger slide," said Timo Wollmershaeuser, head of forecasts at the Ifo Institute.
The institutes estimate that inflation will rise to an average of 2.8% in 2026 and 2.9% in 2027, up from previous estimates of 2.0% and 2.3% respectively. Inflation came in at 2.7% last month.
Write to Ed Frankl at edward.frankl@wsj.com
Corrections & Amplifications
This article was corrected at 07:03 a.m. ET to clarify that German economic forecasts are based on assumptions that the Strait of Hormuz shipping route will be open again in the second quarter of 2026, not 2025.
(END) Dow Jones Newswires
04-01-26 0506ET
