By Elsie Kamsiyochi
Germany’s government has sharply reduced its economic growth forecasts for the next two years, reflecting mounting pressure from the ongoing conflict in the Middle East and the renewed surge in global energy prices.
Officials now expect Europe’s largest economy to expand by only 0.5% in 2026, down from an earlier projection of 1.0%, while the outlook for 2027 has also been lowered to 0.9% from 1.3%, according to a government source familiar with the revised estimates.
The weaker forecast underscores how vulnerable Germany remains to international shocks. The country’s export-driven economy has struggled to fully recover since the pandemic, while earlier disruptions caused by the war in Ukraine had already exposed weaknesses in its industrial base. Now, the conflict involving Iran has pushed oil and gas prices higher again, increasing costs for businesses and households across the country.
At the same time, inflation is expected to remain elevated. The government has reportedly raised its inflation outlook to 2.7% for 2026 and 2.8% for 2027, higher than previous estimates. The increase follows a sharp rise in fuel and energy prices that has filtered through transportation, manufacturing, and consumer goods. German inflation climbed to 2.8% in March, suggesting price pressures may remain stubborn even as economic activity slows.
Higher living costs are also likely to weigh on consumer spending, one of the few areas that had shown resilience in recent months. Household consumption is still expected to grow, but at a slower pace than previously anticipated as families become more cautious about spending amid uncertainty over prices, wages, and the broader economy.
Germany’s trade performance is also under strain. With global demand weakening and geopolitical instability disrupting supply chains, exports are not expected to provide significant support this year. Imports are projected to rise faster than exports in 2027, which could narrow Germany’s long-standing trade surplus and further challenge the country’s traditional growth model.
The revised outlook follows similar warnings from Germany’s leading economic institutes and the International Monetary Fund, both of which recently downgraded the country’s growth prospects. Economists say Germany faces a difficult balancing act: managing inflation while trying to avoid a prolonged period of stagnation that could weaken confidence in Europe’s biggest economy.
The government is expected to formally publish its updated economic forecasts later this month, offering a clearer picture of how deeply global tensions are beginning to affect Germany’s financial outlook.
Source Reuters
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