Germany cuts GDP forecast in half on the Iran war

• Sees 2026 GDP growth of 0.5% vs 1.0% previously
• Sees 2027 GDP at 0.9% vs 1.3% previously
• Expects inflation to rise to 2.7% in 2026 and 2.8% in 2027
• Expects flat exports this year, up 1.3% in 2027
• Recovery again held back by external shocks

The Bundesbank was out with some comment earlier:

• “The negative effects of the war in the Middle East are likely to be felt largely only later on”
• Q2 outlook points to “another modest expansion, at best”
• Fiscal policy to provide “increasingly positive impulses,” but war will weigh “more broadly and noticeably”
• Inflation to stay “significantly elevated” in coming months

Consensus GDP growth in Q1 is expected at +0.2% q/q and the report is out April 30.

The Bundesbank is flagging that the real pain from the Middle East conflict is still ahead. Stagflation risks are building just as Berlin tries to cushion the blow on fuel prices.

It’s all about Iran from here with global oil stockpiles continuing to draw down. The Axios report said Trump will give Iran another 3-5 days to come up with a coherent team to negotiate because leadership is fractured. It’s not clear if that’s true but it’s another 3-5 days of 13 million barrels of oil missing from the global market. There is talk that Europe will run out of jet fuel in six weeks. That’s going to be mitigated by short-haul flight cancellations in a sign of the kind of trade offs that are coming.

In Europe overall, business sentiment is souring and inflation expectations are rising. In Germany, Merz rolled out €1.6 billion in fuel-price relief and Merz says more measures ready if the situation escalates.

The euro is down 6 pips to 1.1735 today.

This article was written by Adam Button at investinglive.com.