Germany's Ifo warns prolonged energy spike could trim 2026 economic growth to 0.6%

BERLIN, March 12 (Reuters) - Germany's Ifo institute warned on Thursday that energy prices driven up by the war in Iran would knock 0.2 percentage points off its economic growth forecast for this year if they remain significantly elevated for an extended period.

The institute expects economic growth of 0.8% this year, on the assumption that oil and gas prices will remain high only in the short term, in line with its forecast in December, and rise to 1.2% next year as the economy is expected to recover.

"Despite the energy price shock, the recovery in Germany is likely to continue throughout this year," said Ifo forecast head Timo Wollmershaeuser.

He pointed to increased government spending on infrastructure, carbon neutrality and defence as stimulating demand.

However, if prices remain high for longer, Europe's largest economy would grow by only 0.6% in 2026 as inflation would be expected to peak at just under 3%, the institute said.

The effect would carry over into 2027, with growth of just 0.8%.