The federal government has significantly lowered its growth forecast for the current year, aligning with expectations. According to the spring projection presented Wednesday by Federal Economics Minister Katherina Reiche (CDU), the projected growth rate for 2026 is 0.5 percent. This marks a reduction from the 1.0 percent growth rate previously anticipated in the annual economic report. For the upcoming year, the ministry currently anticipates growth of 0.9 percent. The inflation rate is expected to be 2.7 percent this year and 2.8 percent the following year.
The reasoning provided cited an economic situation that is less favorable than anticipated, attributing this to shortages and price increases in energy and raw materials stemming from the conflict in the Middle East. In addition to the conflict with Iran, international trade revenues are also strained by protectionist measures and fragmentation. The development of German exports remains weak, partly due to diminished competitiveness. The German economy’s recovery is expected to be primarily supported by domestic demand. Private consumption continues to bolster the German economy, even despite loss of purchasing power due to the energy price shock, as real incomes increase. Furthermore, fiscal stimulus is expected to stimulate gross fixed investments, while government expenditures, particularly in infrastructure and defense, will contribute to overall economic vitality.
Future economic development depends significantly on the trajectory of the Middle East conflict and remains associated with considerable uncertainty. To illustrate this uncertainty, the ministry presented not only the spring projection but also, for the first time, scenarios featuring simulations of economic development under alternative assumptions regarding energy price trends.
Federal Economics Minister Katherina Reiche (CDU) stated that the expected economic recovery for this year is once again being hindered by external geopolitical shocks. She pointed out that the war in Iran is driving up the prices of energy and raw materials, which burdens private households and increases costs for the German economy.
