Commerzbank reported that Germany’s growth outlook is being reduced by an energy price shock, alongside external trade pressures and limited reforms. It said a longer shutdown of the Strait of Hormuz would raise the chance of recession.
The Ifo Business Climate Index fell to 84.4 from 86.3, which the bank linked to weaker conditions. It estimated that growth in 2026 will be about 0.6%, or 0.3% after adjusting for the unusually high number of working days.
It said that even if the Strait of Hormuz reopens at the end of May after a total of three months, growth this year would still be 0.4 percentage points lower. It added that each extra day without oil shipments through the strait increases recession risk.
The bank stated that a fiscal stimulus worth 0.8% of GDP is largely offset by the energy shock, tariff rises, and the absence of broad reforms. It said it lowered its 2026 forecast to 0.6% four weeks earlier, and reiterated the 0.3% working-day-adjusted figure.
The sharp fall in the Ifo Business Climate Index to 84.4 clearly shows how hard the energy price shock is hitting the German economy. With growth forecasts for this year lowered to just 0.6%, we should expect continued pressure on German assets. This outlook is based on the assumption that the Strait of Hormuz reopens at the end of May; any delay will worsen the situation.
Given this de facto stagnation, traders should consider bearish positions on German equities. Buying put options on the DAX index is a straightforward strategy to capitalize on falling corporate earnings expectations. Recent data supports this view, with German industrial production figures released last week showing a 1.5% month-on-month contraction, the steepest since the energy supply issues we saw in 2025.
The slowdown is also a significant headwind for the euro, which has struggled to stay above 1.05 against the dollar. We see further downside for the currency as President Trump’s tariff hikes add another layer of economic friction. Shorting EUR/USD futures or buying euro puts can hedge against this weakness.
Uncertainty over the Strait of Hormuz situation is keeping volatility high, with the VSTOXX index trading near its highest levels for the year. This environment makes buying call options on the VSTOXX an attractive trade, as it profits from increasing market fear. Every day the blockade continues, the risk of a recession grows, likely pushing volatility even higher.
In fixed income, the weak economic outlook has forced markets to push back expectations for any European Central Bank rate hikes. This has been supportive for German government bonds, with the 10-year Bund yield dropping 20 basis points this month in a flight to safety. Looking back at the sovereign debt crisis of 2011, we saw a similar pattern where German debt acted as a haven.
The core issue remains oil prices, with Brent crude holding firmly above $125 per barrel for nearly eight weeks. The key variable for traders is the timing of a potential reopening of the Strait, which would trigger a sharp price decline. Until then, high implied volatility in oil options makes strategies that profit from price movement, such as long straddles, a consideration.
