After a good start to this year for the German economy, the outlook for growth and inflation has deteriorated significantly since the end of February due to the Iran war, in particular the closure of the Strait of Hormuz and the associated increase in energy prices. The closure of the Strait of Hormuz is now lasting longer than initially expected. The erratic US tariff policy is also noticeably dampening German export activities. However, the mood in the economy has also been affected by home-grown problems, especially because the reform process is progressing slowly and has been overshadowed by disagreements within the coalition government. The further development of the Iran conflict is unclear, and the upcoming reforms harbor potential for conflict. Even if the Strait of Hormuz will soon become passable again and oil and gas prices will fall, the increase in energy prices will continue to have an impact for some time. And the subdued mood among investors and consumers is likely to cause restraint for the time being. Only government consumer spending and fiscal programs for infrastructure and defense provide impetus. Under these conditions, the German economy is likely to grow by just under 3/4% this year. In 2027, with an end to the Iran war and a more consistent reform policy, real gross domestic product could grow by 1 1/4%.

The German economy had stabilised towards the end of last year; many economic indicators developed positively. The growth opportunities for 2026 and 2027 were assessed favourably due to the fiscal spending programmes and support measures launched by the coalition government. However, with the Iran war and the resulting price shocks for oil and gas, the prospects for inflation and growth – not only in Germany, but worldwide – have initially deteriorated. The further development of the Iran conflict is unclear – here it is assumed that the war will be limited to the territory of Iran by the middle of the year at the latest and that the Strait of Hormuz will be freely passable again. Oil and gas prices would then move back towards pre-war levels. The recovery of the German economy, scheduled for 2026/2027, could then “pick up speed” again in the second half of this year. Under these conditions, the HWWI expects average annual economic growth of 3/4% for 2026 (before the outbreak of war: 1 1/2%) and one of 1 1/2% for 2027.