Germany has sharply lowered its 2025 economic growth forecast, reflecting the surge in energy prices triggered by the Middle East war.
Germany's Federal Ministry for Economic Affairs and Energy cut its growth projection for this year to 0.5% from 1.0% in its spring economic outlook released Tuesday, local time. The forecast for next year was also lowered to 0.9% from 1.3%. Meanwhile, the ministry raised its 2025 consumer inflation outlook to 2.7% from 2.1%, projecting price growth of 2.8% next year.
"The economic recovery we had expected this year has been halted again by geopolitical shocks," Economic Affairs and Energy Minister Katherina Reiche said. "The war with Iran is driving up energy and raw material prices, increasing burdens on households and costs for businesses."
"Considering the damage to production facilities in the Middle East and the bottlenecks in energy and raw material supplies, normalization will take considerable time," the ministry said in its report. "The negative impact on the German economy will persist throughout this year."
The German economy has suffered successive blows from weak exports, a slump in the auto industry and the energy crisis stemming from Russia's 2022 invasion of Ukraine, contracting for two consecutive years in 2023 and 2024. Last year, gross domestic product (GDP) grew 0.2%, narrowly avoiding what would have been the country's first three-year streak of negative growth.
Earlier, the French government also lowered its 2025 economic growth forecast to 0.9% from 1.0% amid the energy price surge. Its inflation forecast was raised to 1.9% from 1.3%. France also decided to suspend 6 billion euros ($6.5 billion) in spending to offset economic losses from the Middle East war.
The U.K.'s Office for Budget Responsibility (OBR) on the 3rd of last month cut its GDP growth forecast for this year to 1.1% from the 1.4% presented last autumn. The OBR, which reviews budget and fiscal matters independently from the U.K. Treasury, warned that the Middle East conflict could deliver a significant shock to the British economy.
