Germany’s economic outlook downgraded again: Middle East tensions and tariff risks mean 0.5% growth rate is the new normal
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⑴ The German Council of Economic Experts on Wednesday lowered its growth forecast for Europe's largest economy, mainly due to conflicts in the Middle East, rising energy prices, and US trade policy. In its spring report, the council predicts Germany's economic growth will be 0.5% in 2026, down from 0.9% forecasted last November. In 2027, growth is expected to be 0.8%.⑵ The German Ministry of Economic Affairs also lowered its economic growth forecast for 2026 and 2027 in April, while raising its inflation projections. Official estimates currently expect growth of 0.5% in 2026, a significant reduction from the previous 1.0%, and the forecast for 2027 has been cut from 1.3% to 0.9%.⑶ Consecutive rounds of downward revisions reflect mounting external pressures on Germany's economy: tensions in the Middle East are driving up energy costs, and protectionist rhetoric from Trump is increasing trade uncertainty. Germany's export-oriented manufacturing sector faces a double shock. Going forward, attention will focus on the impact of energy price trends and changes in global trade policy on German industrial orders.
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