Key facts
- Germany's Ifo institute lowered its 2027 economic growth forecast to 0.8% from 1.2%.
- The 2024 growth forecast remains unchanged at 0.8%.
- Higher energy prices stemming from the Middle East conflict are impacting purchasing power.
- Inflation is projected at 2.9% for this year and 2.7% for 2027.
- The forecast carries significant downside risks if the Middle East conflict escalates.
- Potential growth is expected to fall to 0.1% by the end of the decade.
Germany's Ifo institute has lowered its economic growth forecast for 2027 to 0.8%, down from the 1.2% previously anticipated in March. This downward revision is attributed to the expectation that prices will remain elevated, influenced by a preliminary agreement to end the conflict in Iran and the subsequent impact on energy prices.
The institute, however, maintained its growth forecast of 0.8% for the current year. This projection is supported by expansive fiscal policies and increased public spending on infrastructure, climate neutrality, and defense initiatives. Ifo noted that the German economy gained momentum over the past winter half-year, but the sharp rise in energy prices, triggered by the Middle East conflict, is diminishing household purchasing power and negatively affecting private consumption.
While Ifo assumes the Middle East conflict will be resolved in the coming weeks and energy prices will gradually decline, it cautioned that the forecast is subject to considerable downside risks should the conflict re-escalate. Inflation is predicted to reach 2.9% this year before moderating to 2.7% in 2027, a slight increase from earlier projections, as higher oil prices are expected to filter through to goods and services. The institute also highlighted weak long-term prospects, with potential growth anticipated to fall to 0.1% by the end of the decade due to demographic pressures and sluggish productivity growth.