"The recovery, while likely to continue, "will be dampened by the sharp rise in crude oil and natural gas prices", said the Ifo Institute. If the war escalates, output in Germany will be reduced by 0.4 percentage points in 2026 and by the same amount again in 2027, compared to a scenario without conflict."
"Germany is heavily reliant on imports for its energy, including for the crucial manufacturing sector, leaving it vulnerable to international price fluctuations. Still, Ifo indicated the energy shock would likely be less severe than the one triggered by Russia's 2022 invasion of Ukraine, when Moscow cut crucial supplies of gas to Germany."
"The hit to the economy will be a blow to Chancellor Friedrich Merz, who had hoped to spur a strong turnaround this year with vast outlays on defence and infrastructure. Germany was among countries that announced Wednesday it would tap into strategic oil reserves in a bid to bring down prices."
The Middle East conflict has triggered a surge in energy prices that threatens Germany's economic recovery. The Ifo Institute warns that crude oil and natural gas price increases will dampen growth prospects. If the war escalates, German output will be reduced by 0.4 percentage points in both 2026 and 2027. GDP growth is projected at just 0.6% this year and 0.8% next year. Even a quick war resolution would still negatively impact output, though less severely. Germany's heavy reliance on energy imports makes it vulnerable to international price fluctuations. However, the impact is expected to be less severe than Russia's 2022 invasion, as Germany obtains only a small proportion of energy from the Middle East. Germany joined other nations in tapping strategic oil reserves to mitigate price increases.
Read at The Local Germany
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