The European Commission has significantly lowered its growth expectations for Germany in its Spring Forecast published on Thursday. Against the backdrop of the economic fallout from the Iran war, the Brussels-based institution now projects Germany's gross domestic product (GDP) to grow by just 0.6 percent in 2026, down sharply from the 1.2 percent it had previously forecast. The Commission also expects inflation across the eurozone to rise to 3.0 percent this year.
For the eurozone as a whole, the Commission revised its 2026 growth forecast downward from 1.2 percent to 0.9 percent of GDP. The outlook for 2027 was also trimmed, from 1.4 percent to 1.2 percent. France, by comparison, faces a less severe impact, the Commission expects the French economy to grow by 0.8 percent in 2026, only slightly below the previously forecast 0.9 percent.
Germany's leading economic research institutes had already slashed their own forecasts in April, arriving at the same 0.6 percent growth figure for 2026. The Commission anticipates that rising public spending in Germany will "positively support overall economic growth." For 2027, the institution projects German GDP growth of 0.9 percent.
The Commission cited the spike in costs and prices triggered by the energy price shock resulting from the blockade of the Strait of Hormuz in connection with the Iran war as the key driver behind the worsened outlook. The price increases are weighing on real wages and profit margins, thereby dampening demand.
"The conflict in the Middle East has triggered a severe energy shock and has put Europe to the test even more, as it was already confronted with an unstable geopolitical and trade policy environment," said EU Economic Commissioner Valdis Dombrovskis. He urged the EU to further reduce its dependency on imported fossil fuels.
As a net importer of energy, the European Union and its 27 member states remain highly vulnerable to fluctuations in energy prices. Many EU countries have attempted to cushion the blow for consumers and businesses through tax cuts, fuel price caps, and other measures. Brussels, however, has called on member states to keep such interventions temporary and targeted.
"The situation is expected to improve slightly in 2027," the Commission stated. However, this improvement is contingent on a stabilisation of energy markets.
The Commission's forecast also points to a sharp rise in inflation. Overall inflation in the eurozone is now expected to reach 3.0 percent by the end of 2026, up from the 1.9 percent projected in the autumn forecast. For 2027, the Commission forecasts an average inflation rate of 2.3 percent, compared to the 2.0 percent it had anticipated in November.
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