BERLIN (AP) – Experts on Wednesday revised down Germany’s growth forecasts for 2026 and 2027, as European governments take measures aimed at reducing the impact on prices in their economies. iran war.
The group of five economic institutions forecasts that Germany’s gross domestic product (GDP) will expand by 0.6% this year (less than half the September forecast of 1.3%) and between 1.4% and 0.9% in 2027. The economic outlook was announced to be lower than the government’s own expectations. 2 months agogrowth of 1% and 1.3% respectively.
The Iran war created an undesirable new obstacle to growth throughout Europe. annual inflation rate In the 21-nation euro zone, the rate of increase rose to 2.5% in March from 1.9% the previous month. The driving force was a 4.9% rise in energy prices as fuel costs rose due to the war and the closure of the Strait of Hormuz.
“This energy price shock is hitting the German economy, which began to recover last year after several years of stagnation,” said Timo Wollmerscheiser, an expert at the Munich-based Ifo Institute, one of the institutions that released the joint forecast for Europe’s largest economies.
“Germany’s economic recovery will slow down, but it should not be completely blocked,” he added, pointing to the planned economic recovery. government spending On defense and infrastructure as one of the stabilizing factors. German production increased by 0.2% last year, after declining for the previous two years.
Mr. Wollmerhauser opposed “short-term activism,” particularly government-mandated fuel price cuts, arguing that this is “costly, benefits many people who don’t need relief, distorts scarcity signals from prices, and maintains demand for oil.”
Germany’s response so far has been relatively cautious. On Wednesday, a law that allows gas stations to raise prices only once a day, at noon, went into effect in an effort to end cost fluctuations at filling stations. It would also give national antitrust authorities the power to act against excessive fuel prices.
Despite the European Union’s Executive Committee urging member states to “consider promoting demand-saving measures” and “refrain from measures that could increase fuel consumption,” some European countries are already going further.
Poland introduced interim measures this week that include a daily cap on fuel prices set by the authorities, with the threat of fines of up to 1 million zlotys (about $268,000) for companies selling above the price cap. Fuel taxes will also be temporarily reduced.
A fuel tax cut in Austria was due to take effect on Wednesday, reducing pump prices. The Swedish government is proposing to reduce taxes on gasoline and diesel from May 1st. The government has already taken action on another front Wednesday, cutting value-added tax by half from 12% to 6% on food and beverages purchased for dine-in or takeaway from restaurants.
Latvia and Lithuania plan to reduce diesel tariffs. Norway, which is not part of the European Union, on Wednesday implemented a temporary cut in fuel taxes that the country’s parliament voted on last week.
Still, the EU Energy Commissioner warned on tuesday Even if peace soon comes to the Middle East, oil and gas prices will not return to normal levels anytime soon.
Wollmerhäuser said Germany’s forecasts were based on the assumption that the Strait of Hormuz would reopen in the second quarter and that energy prices would “but not reach pre-war levels” after the summer.
The turmoil comes as Chancellor Friedrich Merz’s coalition government considers wide-ranging reforms to overcome Germany’s serious problems, including high production costs, lagging private investment and increasingly expensive health care and pension systems, and to boost long-term growth.
Economy Minister Katerina Reich said the message from the latest growth forecasts was clear: “The conflict in the Middle East is increasing pressure on German politicians to commit strongly to structural reforms.”
