German economic council cuts growth forecast as energy prices bite

BERLIN - The German Council of Economic Experts cut its growth forecast for Europe's largest economy on Wednesday, citing the impact of the Middle East conflict, higher energy prices and U.S. trade policy.

The economists now expect 0.5% growth this year, down from a November forecast of 0.9%, according to their spring report to the government.

For 2027, the panel forecasts growth of 0.8%.

Germany's economy ministry cut its growth forecasts for 2026 and 2027 in April and raised its inflation projections. The government now expects 0.5% growth for 2026, down from an earlier projection of 1.0%, and has cut its 2027 growth outlook to 0.9% from 1.3%.

IRAN WAR TAKING ITS TOLL ON CONSUMPTION

Higher energy prices are reducing household purchasing power and weighing on consumption, the economists said.

Inflation is expected to average 3.0% in 2026, up from 2.2% in 2025, before easing to 2.8% in 2027.

In a risk scenario in which oil prices rise to $120 per barrel and remain elevated until October 2026, the advisers said German growth could slow to 0.2% in 2026 and 0.5% in 2027, while inflation would then climb to 3.5% in 2026 and remain at 3.2% in 2027.

Germany's traditional external strength is weakening: the current account surplus is expected to fall from almost 6% of GDP in 2024 to around 3% in 2027 - a "dramatic deterioration in a very short period of time", said council member Gabriel Felbermayr.

Growing competition from Chinese suppliers in Germany's traditional export sectors, such as mechanical engineering, is clearly visible, said Felbermayr. "This places a heavy burden on German industry both at home and in third-party markets."

German Economy Minister Katherina Reiche on Wednesday in Beijing said a modern economic relationship requires both cooperation and competition.

PRESSURE FOR THE GOVERNMENT TO ACT IS IMMENSE

The council also warned that Germany's long-running economic weakness reflected structural problems, including weaker industrial competitiveness and demographic pressures.

"The weakness of the German economy, which has persisted for seven years, is not only cyclical but also has structural causes," said Veronika Grimm, another member of the council.

The economists called for more reforms to make Germany fit for the future, particularly by curbing social spending and increasing the labour force.

"The pressure to act is immense," said Monika Schnitzer, chair of the Council of Economic Experts, during the presentation of the report on Wednesday.

(Reporting by Maria Martinez and Klaus Lauer, Editing by Linda Pasquini)

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This story was originally published May 27, 2026 at 4:56 AM.