Europe’s biggest economy was set for a rebound, but now it’s being hammered by soaring energy costs caused by the Iran war, prompting the federal government to halve growth forecasts.
Germany’s flagship fiscal stimulus package is in the spotlight as ministers scramble to cushion the impact of higher bills.
Before the war, the country had been powered by rising industrial orders, dropping inventories, and improving sentiment, thanks mainly to fiscal spending on defense and infrastructure.
But higher energy prices and supply chain risks are “spoiling the German growth party before it even started,” said Carsten Brzeski, global head of macro research at ING.
The Federal Ministry for Economic Affairs and Energy this week slashed its growth forecast for 2026 to 0.5% from 1%, while its 2027 forecast was cut from 1.3% to 0.9%. Inflation is now projected to reach 2.7% this year and 2.8% the next.
