Germany’s economy is expected to grow more slowly than previously forecast, with rising tensions in the Middle East weighing heavily on the outlook, according to Economy Minister Katherina Reiche.
Speaking about the latest projections, Reiche said economic growth for this year could reach only around 0.5%, reflecting the impact of escalating conflict in the region and its knock-on effects on energy markets.
Her earlier annual economic report, presented in January before reported US and Israeli strikes on Iran, had pointed to a gradual but stable recovery. That outlook has since weakened, with uncertainty increasing if the conflict continues and key shipping routes such as the Strait of Hormuz remain disrupted.
Details of how long the current pressures may last remain unclear. However, Reiche indicated that prolonged instability could further undermine confidence and delay recovery.
Germany’s economy, already emerging slowly from a period of recession, is particularly sensitive to energy price fluctuations. The latest developments have triggered what Reiche described as an “energy shock,” placing renewed pressure on households and businesses.
Inflation is now expected to reach at least 2.7% this year, driven largely by higher prices for fuel, gas and electricity. Rising energy costs are feeding through into broader consumer prices, complicating efforts to stabilise the economy.
Reiche warned that Germany’s underlying growth potential remains weak, estimated at around 0.5% under normal conditions. She said this level is insufficient to ensure long-term prosperity, underlining the urgency of structural reforms.
The fragile recovery is also being supported by significant public spending. The government of Chancellor Friedrich Merz has taken on substantial borrowing, with roughly half of the funds allocated to defence and the remainder directed towards infrastructure investment.
At the European level, the outlook appears similarly subdued. The European Commission is said to expect Germany to record the weakest growth among EU economies, highlighting broader concerns about the bloc’s largest economy.
The situation reflects a wider challenge facing Europe, where geopolitical risks, energy dependence and slow structural reform continue to shape economic performance.