Iran Conflict Threatens to Stagnate German Economic Growth

The prolonged conflict in Iran threatens to bring German economic growth to a near halt, warns the IMK institute. A risk scenario suggests GDP could grow only 0.2% if the situation persists, raising fears of deindustrialization. The institute forecasts 0.9% growth in a more optimistic scenario.

The ongoing conflict in Iran poses a significant threat to the German economy, potentially stalling growth, according to the IMK institute's latest analysis. The think tank warns that if tensions in the Middle East persist or escalate, Germany's GDP may see minimal growth of just 0.2%.

IMK Director Sebastian Dullien noted that earlier this year, the institute had considered raising its forecast for 2026, buoyed by positive economic signals. However, the repercussions of the war have dampened these prospects, with a worst-case scenario even risking deindustrialization in Germany.

In its primary forecast, the IMK anticipates 0.9% growth for 2026, assuming the conflict dissipates by summer and energy prices stabilize. Such conditions would also allow the economy to grow by 1.6% the following year, with inflation expected to average 2.4% in 2026 before dropping to 1.7% in 2027.

(With inputs from agencies.)