IWH: Energy prices dampen hopes of strong growth

The sharp rise in oil prices as a result of the new war in the Persian Gulf is clouding the outlook for the German economy. Although the economy is likely to continue to recover in the coming years, growth will be weaker than recently expected. This is indicated by a new economic forecast from the Leibniz Institute for Economic Research Halle (IWH).

Growth weaker than expected

According to the forecast, the German economy is likely to grow by 0.7 percent this year and by around one percent in 2027. In December, researchers were still forecasting growth of around one percent for both years.

The main reason for the more cautious assessment is the rise in energy prices. Since the outbreak of war, the price of oil has risen to more than 100 US dollars per barrel at times. This has made production more expensive for many companies and at the same time reduced the purchasing power of private households.

The economic recovery is therefore likely to be muted for the time being. In addition to higher energy costs, the cold weather also slowed down construction activity at the start of the year, according to the institute.

Hope from exports and government spending

"What should additionally support the economy in the current year is a stabilization of exports," said IWH Vice President Oliver Holtemöller. According to the forecast, further negative impetus from US customs policy is not expected, and the international economy remains robust overall.

For eastern Germany, the researchers anticipate a similar development to the national average. The economy there is also likely to grow moderately over the next two years.