The German government has significantly downgraded its economic outlook for the next two years, as geopolitical tensions and surging energy prices continue to weigh on Europe’s largest economy. According to sources cited by Reuters, Berlin now expects economic growth of just 0.5% in 2026, down from the previously projected 1%, while the forecast for 2027 has been reduced from 1.3% to 0.9%.
The revision comes after the conflict in Iran triggered a new spike in oil and gas prices, putting additional pressure on energy‑dependent economies such as Germany. In January, German authorities had already lowered their estimates, but the worsening global environment has forced another adjustment.
Inflation, which climbed to 2.8% in March, is expected to remain elevated: 2.7% in 2026 and 2.8% in 2027, compared with 2.3% last year. The high price levels are set to dampen domestic consumption, which is projected to slow considerably. Government sources estimate household spending will grow by 3.2% in 2026 and 3.3% in 2027, below the 4.2% pace recorded last year.
Exports — traditionally the engine of Germany’s economy — are also under pressure. Global uncertainty, trade tensions, and the impact of U.S. tariffs are limiting the outlook for German industry. Reuters’ sources do not expect export growth to resume before 2027, when a modest 1.3% increase is anticipated. Imports, however, are forecast to rise faster, by 1.8%, which would narrow Germany’s trade surplus.
The German Ministry of Economy declined to comment on the information. However, the internal projections align with the latest assessment from the International Monetary Fund, which on Tuesday downgraded its forecasts for Germany — the steepest downward revision among eurozone economies. The IMF now expects growth of 0.8% in 2026 and 1.2% in 2027, both reduced by 0.3 percentage points from previous estimates.
With growth of only 0.2% in 2025, Germany narrowly avoided a third consecutive year of recession. The new forecasts suggest that the recovery remains fragile and that the German economy continues to be highly vulnerable to external shocks, particularly those affecting the energy sector.