Germany Halves Growth Forecasts Amid Iran Conflict Energy Shocks

The Federal Government of Germany halved its 2026 GDP growth forecast from 1% to 0.5% and reduced its 2027 projection from 1.3% to 0.9%. The downgrades follow an energy price shock and supply chain disruptions caused by the war in Iran, specifically U.S.-Israeli attacks and the near-total closure of the Strait of Hormuz. Italy similarly reduced its 2026 growth estimate to 0.6%.

Economic indicators in Germany reached multi-year lows in April 2026, with the ifo Institute's business climate index falling to 84.4, its lowest level since May 2020. Inflation rose to 2.9% in April, driven by a 10.1% year-on-year jump in energy prices. In response, the government implemented a 1.6 billion euro fuel tax relief from May 1 to June 30 and established a 500 billion euro infrastructure fund to support the economy.