After a stronger than expected start to the year, the federal government is expecting a significant economic slowdown in the second quarter. Signs of a noticeable economic slowdown are increasing, the Ministry of Economic Affairs wrote in a report on the economic situation in Germany in May. More than three weeks ago, the federal government had already halved its economic forecast for this year.
Only a mini-growth of 0.5 percent is expected. The escalation in the Middle East has set Germany and other countries back economically, said Economics Minister Katherina Reiche (CDU). The war in Iran is driving up the prices of energy and raw materials.
At the beginning of the year, the German economy had grown even more significantly than expected. According to data from the Federal Statistical Office, gross domestic product increased by 0.3 percent in the first quarter compared to the previous quarter.
Price jumps and high uncertainty
The ministry’s monthly report now states that current indicators point to a significant setback in the second quarter. “Rising prices, supply chain problems and uncertainty are weighing on the mood in companies and private households.” High volatility on the energy, raw materials and financial markets will continue to be expected in the coming months.
Further economic development depends on how long the conflict in the Middle East lasts and how long trade routes and production capacities remain affected. “But even after the situation eases, the consequences for energy and raw material prices as well as supply chains are likely to be felt for a longer period of time.”
The mood indicators in the German economy have deteriorated significantly since the start of the Iran war. The fear of further rising energy and raw material prices as well as increasingly noticeable tensions in supply chains put a strain on companies.
