Economic researchers: The recovery is on shaky ground

According to the Leibniz Institute for Economic Research in Halle (IWH), whether the German economy regains momentum in the coming months depends largely on the conflict in the Gulf region. If the situation there remains tense and energy prices continue to rise, economic output could stagnate in 2026 in the worst-case scenario. “The main risk to the global economy, as well as to the German economy, lies in the uncertain course of the Gulf conflict,” said IWH Vice President Oliver Holtemöller during the presentation of the economic forecast in Halle. 

In their forecast, however, the researchers assume that the situation will ease. In this scenario, they expect growth of 0.9 percent for both 2026 and 2027. They anticipate a similar trend for eastern Germany.

Moderate upturn at the start of the year

A moderate upturn became apparent at the start of the year, the institute reported. Economic output rose noticeably in the first quarter. Higher exports to neighboring European countries were the main factor behind this.

Energy prices weigh on businesses and consumers

According to the researchers’ assessment, the conflict in the Gulf region has already caused energy prices to rise significantly. This increases production costs for many companies while simultaneously eroding the purchasing power of private households. If the Strait of Hormuz, which is vital for oil transport, remains closed throughout the summer, significantly higher energy prices, rising inflation rates, and weaker exports would be the result.

The fact that the economy is nevertheless not at risk of collapsing is also due to government spending and investment programs. In addition, the researchers expect exports to pick up slightly after three years of decline. Private consumer spending is also likely to rise.

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