Economic Outlook – IWH Halle

IWH Summer Forecast 2026

Between Energy Crisis and AI Boom

June 11, 2026

[Translate to English:] Roboter in Menschengestalt betankt ein E-Auto

Until the outbreak of the energy crisis, the German economy was on a path to recovery. Now the recovery will only continue over the course of 2026 if the Gulf conflict eases and energy prices do not rise further. This assumption underlies the present summer forecast of the Halle Institute for Economic Research (IWH). In that case, German output is expected to increase by 0.9% for this year and for 2027. Growth rates in East Germany will be similar. In March, the IWH economists had predicted growth of 0.7% for 2026 and 1% for the next year.

Table with the key figures of the IWH summer forecast for Germany

The Gulf conflict has driven up energy prices and pushed consumer prices higher. The shortfall in crude oil supply is currently being offset by a reduction in inventories and only to a small extent by lower consumption, as it is expected that the Strait of Hormuz will become navigable again over the course of the summer.

At the same time, the AI boom continues to provide strong momentum to the global economy. East Asia supplies many of the capital goods required for artificial intelligence, while much of the investment in these facilities is taking place in the United States. Additional support to economic activity in many regions comes from increased investment in weapons systems as well as in renewable energy. By contrast, interest rate hikes in response to rising inflation are likely to have a dampening effect in many places. Domestic demand in China remains weak, and the euro area economy is struggling with intense competitive pressure from Chinese competitors and with high US tariffs.

For the German economy a moderate upturn seemed to be emerging at the beginning of the year. In the first quarter, output increased (by German standards) quite markedly, driven primarily by a rise in exports, especially to neighboring European countries. However, by the summer it has again become highly uncertain whether 2026 will be a year of recovery. Rising energy prices are increasing production costs and weighing on household incomes, while the looming energy crisis is undermining economic confidence. In addition, the number of people in employment has been declining slightly since last summer, and job losses in manufacturing have even accelerated recently. Nevertheless, a cyclical downturn is unlikely, not least because of the expansionary stance of fiscal policy.