German economy at risk - Growth forecasts halved as price increases weigh on economy
The German economy will grow by just 0.6 percent in 2026, instead of the previously projected 1.3 percent. This is the forecast of the leading German economic institutes. Next year, growth is also expected to be lower, at just 0.9 percent, instead of the previously planned 1.4 percent.
This is bad news for Germany, which has been in recession for years and recorded only slight growth last year. Energy prices will now hamper the economic recovery, although it was based mainly on investment in the military and infrastructure. For these two areas, the government of Friedrich Merz (CDU) has borrowed one trillion euros over the coming years.
Analysis by economic experts shows that energy prices will cause inflation, at least temporarily. The price of gas makes chemical fertilizers more expensive, and this affects food prices. The cost of transporting goods also increases. While the price hike reduces consumption.
Six months ago, the same economic institutes were calculating a consumer price increase of 2 percent this year and 2.3 percent next year.
Experts oppose state intervention in the energy market and instead propose "targeted social measures" that would soften the blow to citizens' pockets.
The federal government is expected to cut its official growth forecast in the coming days, which has so far been 1 percent. The spring forecasts are important because they show how much tax revenue will be. Lower growth means less consumption and therefore less money in the state treasury, increasing pressure on the government to save.
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