The German economy is expected to recover ​more slowly than expected as rising energy prices ⁠following the start of the U.S.-Iran ⁠war weigh on households, companies, and exports, the Kiel Institute ​said in its ​summer 2026 ⁠forecast published Thursday.

The institute expects real gross domestic product (GDP) to grow by 0.8% in 2026 and 1.0% in 2027, cutting its 2027 forecast from 1.4% in the spring.

It said the recovery would be supported by expansive fiscal policy, ⁠especially ⁠public consumption and investment, but held back by higher commodity prices, weak competitiveness and subdued business investment.

Inflation is forecast to accelerate to 2.8% in 2026 from 2.2% in 2025, before easing to ⁠2.3% in 2027.

The institute said higher oil and gas prices were reducing purchasing power ​and keeping price pressures elevated.

Private consumption ​is expected to grow only 0.3% this year and ⁠0.4% ‌next ‌year, while exports are ⁠seen rising 1.8% ‌in 2026 and 1.6% in 2027.

The labor ​market is expected ⁠to improve only ⁠gradually, with unemployment forecast at 6.3% ⁠in 2026 ​and 6.2% in 2027.