Germany news: Recession looms as Iran war chokes growth
06/10/2026 June 10, 2026 Energy shock risks pushing Germany into recession Germany is facing the possibility of a recession as an energy price shock triggered
06/10/2026 June 10, 2026 Energy shock risks pushing Germany into recession Germany is facing the possibility of a recession as an energy price shock triggered by the Iran war weighs on growth. Economists at the DIW Berlin say that output is likely to shrink slightly in the spring and summer quarters. Two consecutive quarters of contraction would meet the definition of a technical recession.
The economy is expected to stabilize toward year-end, supported by government spending. DIW chief economist Geraldine Dany-Knedlik said any growth this year would be driven solely by the public sector. The institute now forecasts 0.5% growth for 2026 and 0.8% for 2027. That marks a downgrade from March, when DIW expected 1.0% growth this year and 1.4% next year. Dany-Knedlik said the energy shock was slowing the recovery "noticeably" but added it was not comparable to the crisis of 2022–23.
"The shock is smaller, energy supplies are still secure, and Germany is now less dependent on fossil fuel imports than it was after the start of the Ukraine war," she said. Higher defense spending and delayed investment from government funds for infrastructure and climate neutrality are expected to provide limited support. Private consumption is recovering only slowly, while export-driven industry remains weak amid structural challenges and global uncertainty.
In a downside scenario, the economy could shrink by around 0.5% in 2026. Germany's economy has been navigating multiple shocks in recent years, from the war in Ukraine to supply chain shocks.
The BriefWire