The Kiel Institute for the World Economy (IfW) is sticking to its economic forecast for the German economy despite the effects of the war in the Middle East. The experts continue to expect an increase in gross domestic product of 0.8 percent this year, as the institute announced. For 2027, however, the experts have reduced their forecast from 1.4 to 1.0 percent.
“The consequences of the Iran war are dampening economic performance,” said IfW President Moritz Schularick. “The rise in raw material prices is proving to be more persistent, which will weigh on economic dynamics well into the coming year.”
Economic dynamism slowed
According to the institute’s summer forecast, on the one hand financial policy is providing expansionary impulses, but the consequences of the Iran war are slowing economic momentum. While so far there are hardly any signs of a strong recovery in exports and corporate investment, as was characteristic of previous recovery phases, public consumption and investment spending in particular are likely to pick up. In contrast, the experts continue to assume that there will be little investment by the economy and significantly clouded employment prospects.
The institute writes that exports from the German economy have recently stabilized. However, there is still no question of a dynamic recovery after the declines of the past few years.
“The declining competitiveness of the German economy will result in further losses of global market share,” said economic expert Stefan Kooths. “Compared to previous upswings, the expected growth is meagre. Without comprehensive reforms to strengthen the location, the German economy will drift into a channel of weakening growth forces with worsening distribution conflicts.”