London, England — The Iran war is to dampen Germany’s economic growth, as reported by the Düsseldorf-based Institute for Macroeconomics Policy research (IMK) on Thursday, March 26.
According to the independent macroeconomic research institute, if the conflict escalates further, Germany’s GDP will rise by 0.2% in 2026 and 1.4% in 2027 – lower than the respective projections of 0.9% and 1.6% if the war did not continue beyond summertime.
“In February, we were still considering raising our forecast for 2026 because increasingly positive signals were coming in, including those relating to industrial orders. A thorough recovery seemed foreseeable,” said IMK director Sebastian Dullien.
“Now, the economic effects of the war are at least partially spoiling this, and in the worst-case scenario, they will exacerbate the risk of deindustrialization in Germany.”
Why the Iran conflict matters for Germany’s economic outlook
According to the IMK report, the key factor behind possible German macroeconomic stagnation lies in energy prices.
As the country heavily depends on the secure transport of oil and gas through the Strait of Hormuz – a waterway between the Persian Gulf and the Gulf of Oman – current disruptions due to missile strikes from Iran’s Islamic Revolutionary Guard Corps (IRGC) are affecting neighboring countries in the Gulf region, especially Qatar, Saudi Arabia and the United Arab Emirates.
The beginning of the conflict in February 2026 prompted the effective closure of the Strait of Hormuz, thus triggering an immediate and severe supply disruption that rocketed Brent crude oil prices by 60%.
“The German economy is suffering from decisions made by foreign politicians, not from classic location or competitiveness problems. To put it bluntly: if the Iran war drives up energy prices, or if the American and Chinese governments slow down exports from Europe through tariffs, subsidies, or targeted currency devaluations, it is pointless to react domestically with pressure on wages, deregulation of working hours, or knee-jerk cuts to social security,” said Dullien
To external pressures, internal solutions
As the IMK considers the issue external, it suggests direct government interference, suggesting to use special funds to develop transformative investments despite the price pressure.
If inflation remains high, the government should consider effigy price caps or the tax cuts to prevent the heavy recovery of complete failure, the research institute noted.
“The German economy is suffering from an external shock, not a domestic failure, and it is the task of the federal government to bridge this crisis,” added Dullien on Thursday.
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