Germany: Recovery risks from energy shock – Deutsche Bank

Deutsche Bank economists Marc Schattenberg and colleagues discuss how higher Oil and gas prices linked to the Middle East conflict are weighing on the German economy. They keep their 2026 GDP forecast at 1.0% thanks to expansionary fiscal policy and Q1 momentum, but warn that private consumption, inflation and quarterly GDP in 2026–2027 are vulnerable to prolonged energy disruption.

Fiscal shield versus energy headwinds

"Against this backdrop and the hard data observed previously, we already lowered our 2026 GDP forecast to 1.0% in early March, while also highlighting that tailwinds from the expansionary fiscal policy should prevent the expected recovery from derailing."

"Together with the tailwinds of the still effective expansive fiscal policy, we are sticking to our quarterly GDP profile in the baseline oil and gas scenario."

"Primarily through the channels of purchasing power loss and perceived uncertainty, we anticipate that the weakening of private consumption will dampen the Q2 growth rate from a previously expected 0.2% q/q to near stagnation."

"Such an intensification of the shock would then have the potential to reduce the growth rate of the German economy in 2026 to roughly 0.5% and to 1.0% in 2027."

"If such an adverse scenario materializes, we would not be surprised to see the consumer price inflation rate at annual averages of well above 3.0% in both 2026 and 2027."

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