The German government has halved its forecast for economic growth in 2026 to 0.5%, down from 1% in its last report in January, as a result of surging energy prices due to the war in Iran.
Economy Minister Katherina Reiche presented the new forecast in Berlin on Wednesday, dampening hopes for a strong recovery for Europe’s largest economy this year.
“The economic recovery expected for this year is once again being held back by external geopolitical shocks,” Reiche said.
“The war in Iran is driving up energy and raw material prices. This is putting a strain on private households and increasing costs for the German economy.”
For 2027, the government expects growth of 0.9%, however this is associated with “considerable uncertainties,” and depends largely on how the conflict in the Middle East unfolds, Reiche said.
Oil and gas prices have soared in recent months due to the conflict in the Middle East and Iran’s blockade of the Strait of Hormuz, a key waterway for global fossil fuel supplies.
Inflation has climbed across Europe, including in Germany, where consumer prices were up 2.7% in March.