Five leading German economic institutes have sharply reduced their GDP growth projections for 2026 and 2027, citing an energy price surge triggered by the Iran war.

The joint forecast anticipates 0.6% expansion this year, down from a 1.3% prediction issued last September. For 2027, growth is now seen at 0.9%, compared to the prior 1.4% estimate. These figures fall short of the German government's projections from two months earlier, which envisioned 1% growth in 2026 and 1.3% in 2027.

The revision stems from disruptions caused by the Iran conflict, including the blocking of the Strait of Hormuz. This has driven up energy costs across Europe, with eurozone inflation climbing to 2.5% in March from 1.9% previously. Energy prices specifically jumped 4.9%.

Germany's economy had begun recovering last year, expanding 0.2% after two years of contraction. Timo Wollmershäuser of the Ifo Institute noted that the shock will slow this rebound but not halt it entirely. He highlighted planned government spending on defense and infrastructure as supportive elements.

Berlin has introduced modest steps, such as limiting gas stations to one daily price adjustment at midday and enhancing antitrust oversight on fuel pricing.

Other European nations have acted more aggressively. Poland imposed daily maximum fuel prices with hefty fines for violations and temporary tax reductions. Austria began fuel tax cuts, while Sweden plans similar relief alongside halved VAT on food and drinks. Latvia, Lithuania, and non-EU Norway are also easing diesel duties or fuel taxes.

The European Commission advocates demand-reduction strategies over consumption-boosting actions.

The institutes' outlook assumes the Strait of Hormuz reopens in the second quarter, with energy prices easing from summer but not returning to pre-war levels. Economy Minister Katherina Reiche emphasized that the Middle East conflict underscores the urgency for structural reforms to address high costs, weak investment, and rising social spending.