Germany Faces Recession Risk as Iran Energy Shock Hits Growth, DIW Economists Warn.
Economists at DIW Economic Institute warn Germany risks a technical recession in 2026 if geopolitical tensions and the Iran energy shock persist, with GDP expected to contract in Q2 and Q3 before stabilizing. The institute slashed Germany’s growth forecast to 0.5% for 2026 and 0.8% for 2027, citing higher crude oil prices driving inflation to 2.9% this year and 3% in 2027, above the ECB’s 2% target.
Germany’s economy faces a heightened risk of slipping into a technical recession this year, according to economists at the DIW Economic Institute. They warn that persistent geopolitical tensions and an energy shock linked to Iran could trigger two consecutive quarters of negative GDP growth, though stabilization is expected by year-end. The revised forecast cuts Germany’s economic growth to 0.5% in 2026 and 0.8% in 2027—half a percentage point lower than earlier projections. DIW attributes the slowdown to rising crude oil prices, which have pushed consumer prices higher and eroded household purchasing power, while also increasing uncertainty for businesses. Inflation is projected to reach 2.9% in 2026 and 3% in 2027, exceeding the European Central Bank’s 2% target. Geraldine Dany-Knedlik, head of DIW’s forecasting division, noted that while the energy price shock is slowing recovery, Germany’s energy supply remains secure, and its dependence on fossil fuel imports has decreased compared to 2022-2023. The downturn follows Germany’s stagnation and contraction in 2022–2023, largely driven by the energy price surge from the Russia-Ukraine conflict. That crisis had triggered inflation spikes and disrupted global trade, severely impacting Germany’s export-driven economy. Economists emphasize that while recovery is fragile, the current situation is less severe than the 2022-2023 downturn, thanks to improved energy security and reduced reliance on fossil fuels.
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