Two identical figures, separated by a year of uncertainties: 0.8 percent. This is the growth of German gross domestic product forecast for both 2026 and 2027 by Ifo, the Munich-based economic research institute, in the recently published summer forecast estimates, which the analysts themselves describe as the result of opposing forces.
On one side, the rise in energy goods prices, which according to researchers’ estimates subtracts 0.4 percentage points from growth in both years. On the other, a strongly expansionary fiscal policy by the government, able to add back 0.5 points thanks to massive investments in infrastructure modernization, transition towards climate neutrality, and especially defense.
THE HIGH COST OF ENERGY
The price paid by the German industrial system for international geopolitical tensions is also measured in absolute terms: Ifo estimates that Germany will lose about 34 billion euros in overall purchasing power between 2026 and 2027 due to the increase in imported raw material costs.
On the consumer price front, inflation is expected to rise to 2.9 percent in 2026, then fall slightly to 2.7 percent the following year.
The baseline scenario, built on forward market prices recorded in May 2026, assumes a progressive international easing in the coming weeks and the regular reopening of the Strait of Hormuz: in this context, oil prices should begin to decline from the third quarter of 2026, stabilizing just below 80 dollars by the end of 2027 and easing manufacturing sector costs.
A HICCUPED RECOVERY
The second quarter of the year will mark a temporary halt in the current recovery phase. “The German economy will temporarily stagnate, but will not fall into recession,” said Ifo’s head of forecasts, Timo Wollmershäuser, explaining that “while a massive energy price shock slows the economy, a strongly expansionary fiscal policy supports growth: the economy is under the influence of opposing forces.”
According to the economist, from the third quarter the recovery should regain momentum and then accelerate at the end of the year. Moreover, forward market quotations following the agreement reached last weekend indicate a faster decline in energy costs, which could reduce inflation and further support GDP.
However, the institute warns that if the agreement fails and the international crisis worsens again, energy prices would remain high, amplifying the negative impact on the economy.
GROWTH POTENTIAL AT HISTORIC LOWS
The long-term prospects outlined by the Munich analysts remain overall un reassuring. Besides energy prices, other factors affect the German economy. Demographic change and weak productivity growth have slowed potential growth, bringing it to a historic low of 0.1 percent by the end of the decade.
The state stimuli implemented so far have had a stabilizing effect in the short term, but according to the Bavarian institute they have mainly contributed to maintaining the status quo, without addressing the structural issues of the production system. “To sustainably increase growth potential, deep reforms are needed that transform a state-supported truce into lasting and autonomous economic growth,” Wollmershäuser stated.
The picture presented by Ifo thus describes a Germany still in precarious balance, supported in the short term by public leverage but exposed, in the medium and long term, to vulnerabilities that public spending alone will not be enough to fill. Economists call for reforms, the government promises to implement them and some steps have already been taken, although opinion polls indicate that pessimism predominates among voters (the latest surveys show the far-right nationalist AfD with a 9-point lead over CDU and CSU nationally). But between energy uncertainty and the productivity issue, the trajectory of Europe’s largest economy remains influenced by variables largely decided beyond national borders.
