The federal government has significantly revised downward its growth forecast for the current year. According to the spring projection, presented on Wednesday by Federal Minister for Economic Affairs, Katherina Reiche (CDU), the growth rate for 2026 is now anticipated to be 0.5 percent, a decline from the 1.0 percent growth rate previously projected in the annual economic report. For the upcoming year, the ministry currently forecasts a growth of 0.9 percent. Inflation is expected to stand at 2.7 percent this year and 2.8 percent the following year.
The reasoning provided for the adjustment is that the economic situation is less favorable than anticipated. This is due to the conflict in the Middle East, which has caused shortages and price increases for energy and raw materials. In addition to the conflict in Iran, the international trade is also being affected by protectionist measures and fragmentation. Germany’s export performance remains weak, partly due to diminished competitiveness. The recovery of the German economy is expected to be primarily supported by domestic demand. Despite losses in purchasing power resulting from the energy price shock, private consumption remains a pillar of the German economy, buoyed by rising real incomes. Furthermore, fiscal stimulus is expected to encourage gross fixed capital formation, while government expenditures, particularly in infrastructure and defense, will contribute to overall economic vigor.
The future economic trajectory is significantly dependent on developments in the Middle East conflict and is marked by considerable uncertainty. To illustrate these uncertainties, the ministry provided not only the spring projection but also the first simulations of economic development scenarios under alternative assumptions about energy price trends.
Federal Minister for Economic Affairs Katherina Reiche (CDU) stated that the projected economic recovery for this year is once again being slowed down by external geopolitical shocks. She noted that the war in Iran is driving up prices for energy and raw materials, which burdens private households and increases costs for the German economy.