Germany lifts GDP forecast as economy withstands Iran war
The government lifted its full-year growth projection to 1.3%, up from its April forecast of just 0.5%, as the German economy proved more resilient than expected.
Germany has significantly revised its growth forecast for 2026, more than doubling its initial projection, as the nation's economy proved resilient during the Iran war. On Thursday, the German government announced that the country's economy had withstood the energy shock caused by the conflict in Iran and was flourishing due to the global AI boom. This optimistic outlook could alleviate pressure on Chancellor Friedrich Merz, who has faced criticism for failing to spur the country's long-stagnant economy.
The improved forecasts come despite geopolitical uncertainties and a global energy price shock, including the closure of the Strait of Hormuz and tariffs. Economy Minister Katherina Reiche revealed that foreign importers rushed to stockpile German-made goods such as steel, fertiliser, and aluminium following the outbreak of the Iran war, thereby supporting growth.
German suppliers are also reaping the benefits of the global trend in artificial intelligence investment, with a surge in demand for German equipment in data centers, such as lasers, semiconductor machinery, and cooling systems.
The government expects exports to grow by 3.7% this year, marking a reversal of the 0.9% decline in 2025. The economy ministry also raised its forecast for 2027 to 1.1%, from 0.9% previously, and anticipates increased public spending on defence and infrastructure to further bolster the economy in the coming years. However, the ministry cautioned that household consumption would remain subdued due to higher energy costs driving up consumer prices.
Inflation in Germany stood at 3.3% in September, the highest level in nearly three years, and the ministry anticipates it to average 2.7% this year, rising to 3.0% in 2027. Household spending is projected to grow by just 0.3% and 0.5%, respectively, after adjusting for inflation. Germany has recently enacted a temporary fuel tax cut to provide relief for drivers, as fuel costs have surged due to the Iran war.
The official growth forecast for 2026 aligns with recent estimates from Germany's leading economic research institutes.
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