Experts have warned of the risk of recession in Germany due to the energy crisis

Germany is facing an economic recession due to the energy supply crisis caused by the escalation in the Middle East, the German Economic Institute (DIW) said. This was reported by the Reuters news agency on June 10.

DIW analysts expect Europe's largest economy to grow by 0.5% this year and 0.8% in 2027, about half a percent lower than forecast in the spring.

Many economists define a recession as two consecutive quarters of decline in a country's gross domestic product. The institute said German production is likely to decline in both the second and third quarters before stabilizing by the end of the year.

The German Economic Institute said that rising oil and gas prices are leading to higher consumer prices, weaker household purchasing power and increased uncertainty for companies.

Inflation will reach 2.9% this year and 3% in 2027, above the European Central Bank's 2% target. At the same time, analysts noted that Berlin's increase in defense spending and infrastructure development prevent an even sharper decline, but do not rule it out completely.

The energy shock worsens the EU's economic prospects, increasing pressure on the budget and affecting growth and inflation, especially in the bloc's largest economy, Germany. The situation is aggravated by the fact that the EU has not yet recovered from the consequences of the 2022 crisis caused by the conflict in Ukraine. Against the backdrop of the ongoing conflict in the Middle East, fossil fuel costs have already increased by more than €20 billion, and oil prices have exceeded $110 per barrel.

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The head of the industrial conglomerate ABB, Morten Virod, said on June 7 that Europe risks facing mass unemployment if it does not immediately deregulate the economy amid the energy shock from the conflict in the Middle East. In his opinion, European lawmakers are not showing proper zeal in carrying out reforms, while rising gas prices undermine the competitiveness of the region.