German growth hit by Iran war energy shock, IMK says

By Maria Martinez

BERLIN, June 18 (Reuters) - Germany's economy will grow less than previously expected this year and next as the Iran war and a resulting energy price shock weigh on consumption and investment, the IMK economic institute said on Thursday.

The Macroeconomic Policy Institute (IMK) forecast gross domestic product would expand by 0.6% in 2026 and 0.9% in 2027, cutting its March projections by 0.3 and 0.7 percentage points respectively.

IMK said the outlook assumed the conflict would not escalate further, energy shipments through the Strait of Hormuz would normalise later this year and oil and gas infrastructure in Gulf states would not suffer substantial additional damage.

"The economic damage from the Iran war is significant, but manageable if the conflict does not drag on for many months," IMK director Sebastian Dullien said.

Inflation is expected to average 2.8% in 2026, higher than previously assumed, before easing to 2.3% in 2027.

IMK said higher energy prices would curb private consumption, while increased public investment should support growth more strongly next year.

The institute urged the European Central Bank to avoid sharp rate increases, warning that a monetary-policy-induced recession would not be helpful if the energy shock proves temporary.

(Reporting by Maria MartinezEditing by Linda Pasquini)