The German Council of Economic Experts has revised its growth forecast for Germany, Europe’s largest economy, in light of escalating energy prices and geopolitical tensions. The council now anticipates a growth rate of 0.5% for 2026, a decrease from the previous forecast of 0.9% made in November. This adjustment was detailed in their spring report to the government.

Impact of Middle East Conflict

The ongoing conflict in the Middle East, particularly involving Iran, has been a significant factor in the rise of energy prices, which in turn is affecting household purchasing power and consumer spending in Germany. The council’s report highlights that higher energy costs are diminishing the disposable income of families, thereby reducing their ability to spend on goods and services.

Inflation is projected to average 3.0% in 2026, up from 2.2% in 2025, before slightly easing to 2.8% in 2027. The council warns that if oil prices were to rise to $120 per barrel and remain high until October 2026, economic growth could slow further to 0.2% in 2026 and 0.5% in 2027, with inflation potentially increasing beyond current projections.

Structural Challenges

Beyond immediate economic pressures, the council also points to long-standing structural issues within the German economy. These include challenges related to industrial competitiveness and demographic changes that could hinder long-term economic stability and growth.

As Germany navigates these economic challenges, the council’s report underscores the importance of addressing both immediate and structural issues to bolster economic resilience and ensure sustainable growth.

Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.