Sawt Falasteen - Germany lifts GDP forecast as economy withstands Iran war

The government lifted its full-year projection to 1.3 percent, up from its April forecast of just 0.5 percent.

The rosier outlook could take some pressure off Chancellor Friedrich Merz, who is facing criticism he has not done enough to kickstart the long-stagnant economy.

"The German economy proved more robust than projected in the spring," Economy Minister Katherina Reiche said in announcing the new forecasts.

"Despite geopolitical uncertainties, despite a global energy price shock, despite the closure of the Strait of Hormuz and despite tariffs, the economy was able to embark on a path of recovery," she told a press conference.

Germany's economy has faced a long decline due to weak export demand, high energy costs, US tariffs and Chinese competition, though recent indicators suggest it is starting to recover.

This year, Reiche said growth had been supported by strong foreign trade, particularly in the months following the outbreak of the US war against Iran.

After the conflict began, foreign importers rushed to stockpile German-made goods such as steel, fertiliser and aluminium, she said.

German suppliers were also benefiting from the "global trend of investment in artificial intelligence", she said.

The boom in data centre construction has led to a flood of orders for German-made equipment such as lasers, semiconductor machinery and cooling systems, she said.

The economy ministry also raised its forecast for 2027 to 1.1 percent, from 0.9 percent previously, and said a public spending blitz on defence and infrastructure would support the economy in the coming years.

But it warned that household consumption would remain subdued as higher energy costs push up consumer prices. German inflation hit 3.3 percent in September, the highest level in nearly three years.

Like elsewhere, Germany has seen fuel costs surge amid the Iran war, prompting the government last week to introduce a subsidy to provide some relief for drivers.

The official growth forecast for 2026 is in line with recent estimates by economic think-tanks.

sr/bst/js

T.Khatib--SF-PST