Bright spot despite the Iran war: The German economy grew in the first quarter. The gross domestic product (GDP) increased by 0.3 percent compared to the previous quarter, as the Federal Statistical Office announced, thereby confirming its previous forecast.
The reason for the growth at the beginning of the year was primarily higher exports, which, according to statisticians, increased significantly by 3.3 percent in the first quarter. Private and government consumer spending also grew by 1.1 percent.
Thanks to increased wages, many people have more money in their pockets, and government investments in defense and armaments support the economy. At the same time, investments in equipment such as machines, devices and vehicles fell (-1.1 percent). Investment in buildings fell even more sharply, by 2.5 percent. This was mainly due to the unusually cold weather in January and February, which slowed down construction progress.
The consequences of war hit the economy
However, with the Iran war, which began at the end of February, the outlook for the coming quarters has clouded over. Economists expect that the German economy, which is dependent on raw material imports, will have to deal with the consequences of the conflict for a longer period of time, which has still not been resolved. Since the Strait of Hormuz, which is important for global trade, is largely closed, crude oil prices have skyrocketed. Higher energy prices, especially at gas stations, put a strain on consumers and companies, which slows down consumption and investment. The mood in the German economy has plummeted.
Economic dampener expected
The Federal Ministry of Economics and the Bundesbank are therefore expecting a setback for the economy in the current second quarter. “Rising prices, supply chain problems and uncertainty are weighing on the mood in companies and private households,” the ministry recently wrote. “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 Bundesbank expects stagnation in the period April to June: “In the second quarter, the effects of the war in the Middle East will probably have a broader and more noticeable impact on the German economy,” it wrote.
Economists have lowered their economic forecasts in a row. Just on Thursday, the EU Commission halved its growth forecast for Germany to 0.6 percent in 2026 due to high energy prices as a result of the Iran war. The federal government still expects an increase of 0.5 percent. By 2025, Germany had already narrowly missed its third year in a row without growth with a mini-plus of 0.2 percent.
