Deutsche Bank economists said higher oil and gas prices linked to the Middle East conflict are weighing on the German economy. They kept their 2026 GDP forecast at 1.0%, citing expansionary fiscal policy and momentum in Q1.
They said private consumption, inflation, and quarterly GDP in 2026–2027 are exposed if energy disruption lasts longer. They expect weaker purchasing power and higher uncertainty to curb spending.
Energy Prices And German Growth
They projected Q2 growth at near stagnation, down from a prior 0.2% quarter-on-quarter. They said fiscal policy support underpins their baseline quarterly GDP profile.
Under a worse energy shock, they estimated 2026 growth could fall to roughly 0.5%, with 2027 at 1.0%. In that case, they said annual average consumer price inflation could be well above 3.0% in both 2026 and 2027.
The article stated it was created with the help of an AI tool and reviewed by an editor. It was published via FXStreet Insights, which compiles selected market commentary from external and internal analysts.
We are currently facing a split outlook for the German economy, where strong government spending is battling against the drag from high energy prices. Given the wide range of potential outcomes for GDP this year, a primary strategy should be to position for increased market volatility. Traders could consider buying straddles or strangles on the DAX index, or purchasing call options on the VDAX-NEW volatility index.
Positioning For Higher Volatility
The risk of a significant slowdown is growing, especially as we head into the second quarter. The latest ZEW Economic Sentiment survey for April fell sharply to -5.2, reflecting pessimism about the next six months, and with tensions in the Middle East pushing Brent crude back over $95 a barrel last week, the downside scenario looks increasingly plausible. This environment warrants considering protective put options on the DAX to hedge against weakening private consumption.
Inflation remains a critical factor that could complicate the picture and pressure the euro. The most recent flash estimate for German CPI in March 2026 showed a rise to 2.9%, and if the adverse energy scenario unfolds, inflation could get stuck well above 3.0%. This stagflationary environment would make it difficult for the ECB to act, suggesting short positions on the EUR/USD could be an effective trade.
The direct trigger for this economic pressure remains the energy markets. European TTF natural gas prices have also climbed as German gas storage levels, reported this week at 68%, are running slightly below the five-year average for mid-April. For those convinced the geopolitical situation will not de-escalate soon, call options on energy ETFs or oil futures offer a direct way to trade this view.
Conversely, any sign of easing energy prices could allow the underlying economic momentum to resurface, powered by the fiscal support measures we saw enacted in the second half of 2025. A significant drop in oil prices would be a strong signal to unwind bearish positions and re-establish long exposure to German equities. This makes call options on German industrial sector leaders a viable strategy for a potential rebound.
