Germany Upgrades Economic Outlook as Resilience Defies Iran War Impacts

Foreign trade is projected to drive Europe’s largest economy forward this year.

Surging exports prompted the German government to more than double its 2025 growth forecast on Thursday, citing the economy’s resilience against energy disruptions triggered by the Iran conflict and benefits from the global artificial intelligence boom.

The revised outlook offers reassurance to Chancellor Friedrich Merz, who faces criticism for not revitalizing Germany’s persistently stagnant economy.

“The German economy demonstrated stronger performance than anticipated in the spring,” stated Economy Minister Katherina Reiche during the announcement of updated forecasts.

“Despite geopolitical uncertainties, a global energy price shock, the closure of the Strait of Hormuz, and tariff challenges, the economy has initiated a recovery trajectory,” she declared at a press briefing.

Germany’s economy has endured years of stagnation linked to weak export demand, elevated energy costs, US tariffs, and Chinese competition; recent indicators suggest a potential turnaround.

According to Reiche, foreign buyers accelerated purchases of German-made products, including steel, fertilizers, and aluminum, in the months following the Iran crisis, bolstering growth.

The government anticipates exports will rise by 3.7% in 2025, reversing a 0.9% contraction in 2024.

German suppliers are also capitalizing on the “global trend of artificial intelligence investment,” she noted.

Data center construction surges have driven demand for German-produced lasers, semiconductor equipment, and cooling systems, contributing to economic momentum.

The economic ministry also increased 2027 growth projections to 1.1% from 0.9% previously, citing enhanced public spending on defense and infrastructure. Growth is projected to decelerate to 0.6% in 2028.

However, the ministry cautioned that household consumption will remain subdued due to higher energy costs driving inflation. Germany’s inflation rate reached 3.3% in September, its highest point in nearly three years.

The ministry forecasts inflation at 2.7% for this year and 3.0% in 2027. Adjusted for inflation, household spending is expected to grow by just 0.3% in 2025 and 0.5% in 2027.

Similar to other nations, Germany has experienced fuel cost increases amid the Iran conflict, prompting the government to implement a temporary fuel tax reduction last week to alleviate driver expenses.

The official 2026 growth forecast aligns with recent assessments from Germany’s leading economic research institutions.

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