The Ifo economic research institute has adjusted its outlook for Germany's economy, cutting its forecast for 2027 GDP growth to 0.8% from the 1.2% it published in March. The revision reflects expectations that prices will remain elevated despite a preliminary agreement intended to end the conflict in Iran.
For 2026, Ifo left its growth projection unchanged at 0.8%. The institute says this year's forecast is supported by expansive fiscal policy and stepped-up public expenditure focused on infrastructure, climate neutrality measures and defence. In its latest forecast, Ifo noted that "the recovery of the German economy gained momentum over the past winter half-year."
At the same time, the institute highlighted a significant headwind: a sharp rise in energy prices triggered by the conflict in the Middle East. Ifo said higher energy costs are eroding households' purchasing power and weighing on private consumption, reducing a key engine of demand.
While Ifo assumes the Middle East conflict will be resolved in the coming weeks and expects energy prices to fall gradually, it explicitly warned that the outlook contains "considerable downside risks" if the conflict flares up again. The institute's scenario therefore rests on a de-escalation that has not yet been fully realised.
Inflation is projected to climb to 2.9% this year before easing slightly to 2.7% in 2027. Those inflation readings are higher than Ifo's prior projections and are explained in the forecast by higher oil prices feeding through to the prices of goods and services.
Looking further ahead, Ifo described long-term prospects as weak. It expects potential growth to decline to just 0.1% by the end of the decade, a slowdown the institute attributes to demographic pressures and weak productivity growth.
Contextual note - The institute's projections combine a near-term view shaped by fiscal support and elevated energy costs with a longer-term concern about structural constraints on growth. The forecast therefore balances temporary policy-driven stimulus against persistent headwinds from prices and structural factors.