German economic body halves 2026 growth forecast to 0.5%

A key body of German economic advisers has nearly halved its forecast for growth in 2026 to 0.5% as a result of high energy prices due to the war in Iran.

The German Council of Economic Experts, a five-member council also known as the "Five Sages" that advises the government on economic policy, presented its spring forecast on Wednesday, lowering the previous 0.9% estimate from November.

This is in line with the current forecast of the German government, which also slashed its estimate from 1% to 0.5% last month, citing the surge in energy prices due to the Iran war.

"Downside risks to the German gross domestic product forecast stem in particular from the Iran war lasting longer and having more severe consequences than expected," the council said.

Global energy prices were sent soaring after Iran effectively closed the Strait of Hormuz, a key artery for global oil and gas exports, in response to the US-Israeli attacks launched on February 28.

Prices for other goods, including grain and fertilizers, have also gone up.

"The sharp rise in oil prices is likely to lead to a deterioration in Germany’s terms of trade in 2026," the council said. "This reduces households’ purchasing power and, consequently, private consumption."

Rising costs for fossil fuels and intermediate goods have driven up companies’ production costs, according to the report, which noted that this further exacerbates the decline in German industrial production and dampens private investment. 

At the same time, the global economic slowdown is weighing on the German export sector, it said.

The council expects the export-oriented German economy to grow by 0.8% in 2027, driven by billions in state funding to modernize infrastructure.

Inflation is expected to reach an average of 3% in 2026, before dropping to 2.8% in 2027, according to the experts.

In April, Germany's inflation rate rose to 2.9% - the highest level since January 2024.