The German economy is expected to recover more slowly than expected as rising energy prices following the start of the U.S.-Iran war weigh on households, companies, and exports, the Kiel Institute said in its summer 2026 forecast published Thursday.
The institute expects real gross domestic product (GDP) to grow by 0.8% in 2026 and 1.0% in 2027, cutting its 2027 forecast from 1.4% in the spring.
It said the recovery would be supported by expansive fiscal policy, especially public consumption and investment, but held back by higher commodity prices, weak competitiveness and subdued business investment.
Inflation is forecast to accelerate to 2.8% in 2026 from 2.2% in 2025, before easing to 2.3% in 2027.
The institute said higher oil and gas prices were reducing purchasing power and keeping price pressures elevated.
