The Iran war is putting the brakes on Germany's already sluggish economic recovery. In their spring report published on Wednesday, the country's leading economic advisors, Council of Economic Experts, now expect gross domestic product (GDP) to grow by just 0.5 percent this year. That marks a significant downward revision from the 0.9 percent growth they had projected in their annual report last November.
"The Iran war and the resulting sharp rise in crude oil and gas prices, along with US trade policy, are weighing on the economic outlook," the Council stated in its spring report. The fact that the German economy is still expected to grow at all this year is largely thanks to government spending on defence and infrastructure, the advisors noted.
The updated forecast also paints a gloomier picture on inflation. Consumer prices are now expected to rise by 3.0 percent in 2026, that is 0.9 percentage points higher than the Council had predicted in autumn 2025. High energy costs are also hitting businesses hard, "further reducing already declining industrial production and holding back private investment," the report stated.
Beyond the immediate crisis, the Council highlighted deeper structural challenges for Germany's economy. Growth prospects are being dampened by an ageing population and rising contribution rates for social insurance. "Contribution rates will increase across all branches of social insurance by the year 2040 due to progressive demographic ageing," the Council warned.
As these rates climb, the net income of private households shrinks and consumer spending declines accordingly. Younger generations, the advisors added, will have to spend "a significantly higher share of their lifetime earnings on social insurance contributions" compared to previous generations.
"The foreseeable rise in social insurance expenditure should be slowed down," said Council chairwoman Monika Schnitzer. At the same time, she emphasised the need to "stabilise the revenue base and the level of benefits provided by social security systems."
According to the economic advisors, it is particularly important to curb the growth in spending "especially in hospital care and on pharmaceuticals." They also called for strengthening health prevention efforts and ensuring that long-term care insurance is funded in a way that is "fair across generations."
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