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DIW Economic Outlook Summer 2026

Energy price shock slows German economy— Global growth remains moderate

  • Energy price shock triggered by the Iran War stalls the nascent recovery of the German economy—technical recession expected around mid-year
  • Deep downturn comparable to 2022/23 remains unlikely—shock is smaller, energy supply remains secure, and expansionary fiscal policy provides support elsewhere in the economy
  • Higher oil and gas prices push inflation to 2.9 percent this year and 3.0 percent next year— unemployment rate rises temporarily to 6.4 percent
  • DIW Berlin expects the German economy to grow by 0.5 percent in 2026 and 0.8 percent in 2027— forecast revised down by around 0.5 percentage points in each year compared with the spring outlook
  • Global economic output continues to expand at a moderate pace despite the energy price shock, by 3.1 percent this year and 3.3 percent next year—US economy continues to grow
The infographic from the DIW Weekly Report 24/2026 shows a time series of Germany’s gross domestic product (GDP) from 2020 to 2027. At the top is the headline stating that the expected economic recovery is weaker than expected in the spring forecast. The central element is a combined chart featuring stacked bars and a line. The bars represent the growth contributions of various components: consumption, investment, exports, and imports. These are color-coded, with positive contributions shown at the top and negative contributions at the bottom. A line runs across the bars, showing the annual change in GDP as a percentage. The y-axis shows percentages ranging from approximately minus 8 to plus 8, while the x-axis shows the years from 2020 to 2027. Specific figures are provided for each year, such as a sharp decline in 2020 of about minus 4.1 percent, a significant recovery in 2021 of around 3.9 percent, and subsequently weaker growth rates—some of which are negative—through 2024. For the following year, 2025, there was 0.2 percent growth; moderate growth of 0.5 percent is forecast for 2026, and 0.8 percent for 2027. Below the graph is the source citation from the German Institute for Economic Research (DIW) as well as a note regarding the license.

German Economy

Energy price shock slows the recovery

The German economy is failing to gain momentum after three weak years. At the turn of the year, a modest recovery appeared to be taking hold, driven primarily by domestic demand and private consumption. However, in addition to the structural problems already present, the German economy must now also contend with the consequences of the Iran War. The energy price shock has halted the recovery before it could gain traction. Rising oil and gas prices have since been driving up consumer prices, eroding household purchasing power, and fueling the already widespread uncertainty. Nevertheless, a deep downturn comparable to the energy price crisis of 2022/23 does not appear to be on the horizon.

At the start of the year, Germany's economic output still grew by 0.3 percent, supported by the public sector and foreign trade, while the rest of the domestic economy remained weak. As the year progresses, the impact of the energy price shock is becoming clearly apparent: economic output is likely to contract slightly in the second quarter (by 0.2 percent) and decline marginally again in the third quarter, before stabilizing toward year-end. Private consumption is softening, and investment appetite remains subdued. Once again, the public sector remains the sole source of support. Even beyond the current year, the expansionary fiscal policy stance remains the decisive driver. Rising defense spending and the gradual deployment of funds from the special fund for infrastructure and climate neutrality will account for the bulk of growth—though they are no miracle cure, as the impact of these investments is unfolding only gradually.

After growth of 0.5 percent this year, DIW Berlin expects the economy to expand by 0.8 percent next year—both around half a percentage point lower than forecast in the spring outlook. Consumer price inflation, at 2.9 and 3.0 percent respectively, exceeds the European Central Bank's stability target, and the unemployment rate is rising to 6.4 percent this year. An updated scenario analysis by DIW Berlin highlights the scale of these risks. In a downside scenario derived from market expectations, growth this year would be around 1.5 percentage points lower—equivalent to the German economy contracting by just under half a percent in 2026. Inflation would reach a level similar to that seen during the energy price crisis of 2023.

A grayscale table titled “Key economic indicators for the German economy” presents forecast data for the years 2025, 2026, and 2027 in three columns, with indicators listed in the left column and numeric values aligned by year, showing GDP growth rates of 0.2, 0.5, and 0.8 percent; employment figures in thousands of 45,977, 45,838, and 45,923; unemployed persons in thousands of 2,948, 2,992, and 2,896; unemployment rates of 6.3, 6.4, and 6.2 percent; consumer price increases of 2.2, 2.9, and 3.0 percent; and unit labor cost increases of 4.5, 2.4, and 2.8 percent, followed by government budget balance values shown both in billions of euros, declining from negative 123.6 to negative 179.0 and negative 203.2, and as percentages of nominal GDP at negative 2.8, negative 3.9, and negative 4.3, as well as current account balances shown in billions of euros at 202.7, 192.2, and 181.3 and as percentages of nominal GDP at 4.5, 4.2, and 3.8, with footnotes explaining measurement concepts and a note indicating forecasts from 2026 onward and sources including the Federal Statistical Office and DIW Berlin Economic Outlook Summer 2026.

“The German economy was only just starting to work its way out of a three-year slump when the Iran War drove up energy prices. This is noticeably slowing the recovery—but this is not a repeat of 2022: the shock is smaller, energy supply remains secure, and expansionary fiscal policy is providing support.” Geraldine Dany-Knedlik, Head of Division Forecasting and Economic Policy

Global Economy

Iran War Dampens Outlook for the World Economy—Yet Moderate Growth Expected

The global economy continues to grow at a moderate pace despite the energy price shock. While the Iran War is weighing on the global outlook, world trade expanded strongly at the start of the year and is only slowing modestly. The United States is bucking this trend, growing by 2.2 percent this year, driven by investment and energy exports; the euro area, by contrast, is growing only weakly at 0.3 percent. For global economic output overall, DIW Berlin projects growth of 3.1 percent this year and 3.3 percent next year.

A large grayscale table titled “Real Gross Domestic Product, Consumer Prices, and Unemployment Rate in the Global Economy” presents year-on-year percentage changes for GDP and consumer prices and unemployment rates in percent for 2024, 2025, 2026, and 2027 across multiple regions and countries, with three main column groups labeled GDP, Consumer prices, and Unemployment rate, each subdivided by the four years, and rows grouped by regions including Europe, The Americas, Asia, and summary categories, showing for example that the European Union has GDP growth of 1.0, 1.6, 0.7, and 1.4 percent, consumer price increases of 2.6, 2.5, 3.1, and 2.9 percent, and unemployment rates of 6.0, 6.0, 6.0, and 5.8 percent, while the euro area shows lower GDP growth of 0.9, 1.5, 0.3, and 0.9 percent and unemployment around 6.4 to 6.1 percent, with country-level entries such as Germany excluding Germany aggregate, France, Italy, Spain, Netherlands, United Kingdom, Switzerland, and Central and Southeastern Europe displaying varying economic trends, including relatively high inflation in Turkey with values above 29 percent after 2025 and declining but still elevated inflation in Russia, while in the Americas the United States shows steady GDP growth around 2.1 to 2.2 percent and unemployment rising slightly from 4.0 to 4.7 percent, and in Asia countries such as Japan, South Korea, China, and India show diverse growth patterns with China maintaining GDP growth above 4 percent and India above 6 percent, followed by summary rows for advanced economies, emerging economies, and the global economy indicating overall GDP growth slowing from 3.6 percent in 2024 to 3.1 percent in 2026 before slightly increasing to 3.3 percent in 2027, and unemployment rates remaining around 5.4 to 5.7 percent globally, with additional reference rows for export-weighted and GDP-weighted measures, and footnotes clarifying data uncertainty, weighting methods, and sources from national statistical offices and the DIW Economic Forecast Summer 2026.

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