May 15, 2026
German economy to take big hit from Iran war in 2nd quarter
The German government says it expects the economy to suffer a significant slowdown in the second quarter as a result of the Iran war.
The prediction comes less than a month after the government halved its economic growth forecast to 0.5% for the whole year.
“Rising prices, supply chain issues and uncertainty are weighing on sentiment among businesses and households,” the Ministry for Economic Affairs said in its monthly report.
It said further economic development will depend on how long the conflict in the Middle East lasts and how long trade routes and production capacities remain impaired.
“But even after the situation eases, the consequences for energy and raw materials prices and supply chains are likely to remain noticeable for longer,” it said.
Europe’s largest economy had a stronger-than-expected start to the year, with GDP growing 0.3% in the first quarter compared with the previous quarter.
Rising prices also weigh heavily on industries
High energy costs have also caused Germany’s energy-intensive industries to scale back production and cut tens of thousands of jobs, according to the Federal Statistical Office.
Since February 2022, production fell by 15.2% in the chemicals, paper, glass, and metal manufacturing sectors. The number of workers dropped by 53,300, or 6.3%.
The decline in production was most pronounced among manufacturers of concrete, cement, and sand-lime brick products, the statistics office said.
One exception was petroleum processing: it increased its production by 24.6% and created 1,000 new jobs.
Sentiment drops in residential construction sector
Meanwhile, sentiment in Germany’s housing construction sector dropped in April to its lowest level in four years.
The Munich-based Ifo Institute’s business climate index for the sector plummeted from minus 19.3 points in March to minus 28.4 points last month.
“Geopolitical uncertainty is now also weighing on residential construction in Germany,” the Ifo’s Klaus Wohlrabe said. “With fragile supply chains and rising financing costs, several risks are hitting the construction sector simultaneously.”
