Germany's economy is likely to slip into a technical recession this year as an energy price shock triggered by the war in Iran derails a fragile recovery, the DIW economic institute said on Wednesday, cutting its 2026 growth forecast in half. DIW Berlin now expects Europe's largest economy to grow by 0.5% this year and 0.8% in 2027, around half a percentage point lower than forecast in spring. Get a look at the day ahead in European and global markets with the Morning Bid Europe newsletter.
The institute said output was likely to contract slightly in both the second and third quarters before stabilising toward the end of the year. Many economists define a recession as two consecutive quarters of decline in a country's gross domestic product. DIW said higher oil and gas prices were pushing up consumer prices, weakening household purchasing power and increasing uncertainty for companies.
Inflation is expected to reach 2.9% this year and 3% in 2027, above the European Central Bank's target of 2%.
