Germany cuts 2026, 2027 growth forecasts as Iran war lifts inflation

Germany is preparing to lower its growth outlook for 2026 and 2027 as the Iran war pushes oil and gas costs higher, adding fresh inflation pressure to Europe’s largest economy. The revised forecasts point to growth of 0.5% in 2026, down from 1.0%, and 0.9% in 2027, down from 1.3%, a sharp reminder that geopolitical shocks are now feeding directly into German economic planning.

The downgrade lands against a weak domestic backdrop. Germany’s economy ministry said activity lost noticeable momentum in the first quarter of 2026 after the outbreak of the war in the Middle East, while sentiment in both corporate and consumer indicators deteriorated significantly. Energy prices rose sharply, with the ministry saying they increased significantly for the first time since December 2023. Seasonally adjusted unemployment stagnated in March, and the IWH Insolvency Trend showed a 17% increase in insolvencies from February and an 18% rise from March 2025.

The government’s move follows earlier cuts from Germany’s leading economic institutes, which had already reduced their joint 2026 forecast to 0.6% from 1.3% and their 2027 forecast to 0.9% from 1.4%. The International Monetary Fund also lowered its German outlook in its April 14 World Economic Outlook, forecasting growth of 0.8% in 2026 and 1.2% in 2027, and describing the move as its largest downgrade among major euro-zone economies.

The pressure is not limited to Germany. The European Central Bank said in March that the Middle East war had created upside risks to inflation and downside risks to growth across the euro area, projecting headline inflation of 2.6% in 2026 and 2.0% in 2027. That combination leaves Berlin facing a harder policy trade-off: energy-driven price spikes can erode household purchasing power, while higher input costs and uncertainty can squeeze industrial margins and delay investment.

The economy ministry declined to comment on the revised German forecasts, which are due to be published on April 22. But the direction is already clear. A weaker Germany means less momentum for the broader eurozone recovery, and if oil and gas prices stay elevated, the region could face a longer stretch of sluggish growth and stubborn inflation than policymakers had hoped.