The German government has lowered its growth forecast for 2026 to 0.5 percent, as the conflict in the Middle East drives up energy and raw material prices. This is outlined in a report from the Ministry of Economic Affairs, which describes signs of an economic slowdown in the second quarter of 2026.
Federal Minister of Economics Katherina Reiche stated that the escalation in Iran has economically set back Germany and other countries. The increased energy prices particularly burden energy-intensive sectors such as the chemical and metal industries.
The government is under pressure to enhance the competitiveness of businesses. Therefore, it plans a comprehensive reform package by the summer break to address the challenges posed by the current situation.
The economic development heavily depends on how long the conflict in the Middle East lasts and to what extent trade routes and production capacities remain affected. Even after a possible easing of the situation, the repercussions on energy and raw material prices as well as supply chains are likely to be felt for a longer period.
