German Economy Ministry sees slower growth ahead

The German government is expecting a clear economic slowdown in the second quarter after a stronger-than-expected start to the year, the Economy Ministry said in its May report.

The signs of a noticeable economic weakening were intensifying, the ministry wrote on Friday. 

Just over three weeks ago, the government halved its economic forecast for the year as a whole. Only minor growth of 0.5% is now expected in 2026. 

The escalation in the Middle East had set Germany back economically, as it had with other countries, conservative Economy Minister Katherina Reiche said. The war in Iran is pushing up prices for energy and raw materials, she pointed out.

At the start of the year, the German economy grew more strongly than expected. Gross domestic product rose by 0.3% in the first quarter compared with the previous quarter, according to data from the Federal Statistical Office.

"Rising prices, supply chain problems and uncertainty are weighing on sentiment among companies and private households," the ministry said on Friday. High volatility can still be expected in the coming months on energy, raw materials and financial markets, it said.

Further economic development will depend on how long the conflict in the Middle East lasts and how long trade routes and production capacities remain impaired, the ministry said. "But even after the situation eases, the consequences for energy and raw materials prices and supply chains are likely to remain noticeable for longer."