German economy in trouble/ Expected to shrink due to geopolitical influences
The German Council of Economic Experts lowered its economic growth forecast for 2026, warning that the war in the Middle East, rising energy prices and continued US trade protectionism were putting new pressure on Europe's largest economy after years of stagnation.
The council, a panel of five economists appointed by the German president, said it now expects the economy to expand by just 0.5 percent this year, 0.4 percentage points below the previous forecast issued last fall, with the revision driven largely by the war in the Middle East.
After a prolonged period of weak growth since 2019, the German economy is facing increasing pressure to adjust as a result of recent geopolitical developments, the council said in its spring economic outlook.
The war and the subsequent sharp rise in crude oil and gas prices, along with U.S. trade policy, were weighing on economic activity and reducing purchasing power through a deterioration in Germany's terms of trade, she said.
The Council warned that the main downside risk to the outlook was that the war could drag on longer and cause more severe economic disruption than currently assumed.
Germany's economy, heavily dependent on global markets and stable supply chains, is facing growing external risks from energy crises, regional conflicts and ongoing trade frictions.
"Our biggest concern is definitely the supply chain. Germany, being a resource-poor country, relies heavily on imports of raw materials - including oil and gas. The supply chain is vital; the German economy depends on it. However, as we have learned from the current situation, supply chains are not secure," said Georg-Rene Lubinski, partner in the Frankfurt office of law firm Heussen in Germany.
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