Germany faces recession risk as Iran-linked energy shock weighs on growth, DIW says

Wednesday 10 June 2026 - 10:45

Germany’s economy is at risk of slipping into a technical recession this year as a sharp rise in energy prices linked to the conflict involving Iran weighs heavily on growth, according to the DIW economic institute.

The Berlin-based think tank DIW Berlin has revised its economic outlook downward, now expecting Germany’s GDP to grow by just 0.5% this year and 0.8% in 2027—roughly half a percentage point lower than its previous forecast.

Economists at DIW warned that Europe’s largest economy could experience two consecutive quarters of contraction before stabilizing later in the year, a pattern commonly used to define a technical recession.

The downturn is being driven primarily by higher oil and gas prices, which are increasing inflation and reducing household purchasing power. Rising costs are also creating uncertainty for businesses, slowing investment and economic activity.

Inflation in Germany is projected to reach 2.9% this year and 3% in 2027, remaining above the European Central Bank’s 2% target.

Despite the pressure, DIW noted that the situation is less severe than previous energy crises, pointing out that energy supply remains stable and Germany is less dependent on fossil fuel imports than it was during earlier global shocks.