Germany: Recovery potential versus energy drag – Commerzbank

Commerzbank’s Dr. Jörg Krämer argues that high energy prices will continue to weigh on the German economy in the second half of 2026, limiting full-year growth to 0.6%. He notes that the strong Ifo business climate reading partly predates the recent Oil price surge, but still highlights recovery potential if US–Iran tensions ease and the Strait of Hormuz reopens permanently.

High energy costs cap German growth

"The significant increase in the Ifo business climate (86.6 after 85.7) is only of limited significance because most companies answered the survey before the massive oil price increase of the last two weeks. But at least the increase shows the potential for recovery if the US and Iran would reach an agreement and the Strait of Hormuz would be permanently opened. Unfortunately, however, the road to a lasting agreement is likely to be long and bumpy, so that the economy will also suffer from high energy prices in the second half of the year."

"When interpreting the sharp increase, it should be taken into account that companies usually responded to the Ifo survey by the middle of the month. Most companies have therefore not been able to react to the sharp rise in the oil price since then. In this respect, the July reading is likely to exaggerate the actual development, even if the Brent oil price fell by around 10 dollars this morning compared to Friday and is at around 90 dollars."

"Ultimately, the road to an understanding will be long and bumpy, even if Iran has a strong economic incentive to reach an agreement in the end, because Donald Trump has made major concessions (even reconstruction aid) to the regime in the framework agreement."

"All in all, high energy prices are likely to continue to weigh on the German economy in the second half of the year. We continue to expect only a meagre increase of 0.6% for the year as a whole. But at least today's sizeable rise in the Ifo business climate shows the potential for recovery if the US and Iran reach an agreement and the Strait of Hormuz is opened permanently."

"However, because an agreement will take a long time, this is more likely to be an argument for slightly more growth for the coming year (forecast: 1.0%)."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)