The German government is set to lower its economic growth forecast for this year on Wednesday, as surging energy costs linked to the Middle East war weigh heavily on Europe’s largest economy, News.Az reports, citing AFP.

Expectations had been rising that the eurozone’s traditional growth engine would begin to recover in 2026 after a prolonged slowdown, supported by a public spending push led by Chancellor Friedrich Merz.

However, the spike in oil and gas prices following the U.S.-Israeli war involving Iran has dealt a major setback, increasing inflation and driving up costs for Germany’s key manufacturing sectors.

Earlier in April, leading economic institutes already revised down their growth forecasts for the year to 0.6 percent, compared with a previous estimate of 1.3 percent made in September.

Economy Minister Katherina Reiche is also expected to announce a significant downgrade when presenting the government’s updated projections.

The government’s last official estimate, published in January, had projected economic growth of 1 percent for the year.

“The German economy will face a significant burden over an extended period,” Merz said last week, as his administration introduced €1.6 billion ($1.8 billion) in fuel price relief measures aimed at households and businesses.

Before the escalation involving Iran, Germany’s economy had only just begun to recover from the energy crisis triggered by the war in Ukraine and the impact of U.S. tariff measures last year.

The renewed rise in energy prices is placing particular strain on Germany’s heavy industries, including steel and chemicals, while supply chain disruptions are delaying the delivery of essential materials.

At the same time, consumers are facing rising costs, especially for fuel. Inflation climbed to 2.7 percent in March, marking its highest level in more than two years.

News.Az 

By Nijat Babayev