On Wednesday, the Ministry of Economics in Berlin announced that gross domestic product is forecast to grow by 0.5 percent this year. For comparison, the January forecast assumed an increase of 1%.
The ministry also lowered its forecasts for next year from 1.3 percent. up to 0.9 percent “The escalation in the Middle East and the war in Iran have set us back,” Economy Minister Katherina Reiche said at a news conference in Berlin. “The situation remains very unstable.”
The deteriorating situation on the labor market will increase the pressure on Chancellor Friedrich Merz and his divided coalition.
The conservative leader has bet his government on reviving Europe's largest economy and has encountered difficulties in trying to repair a welfare system that is taking up an increasing share of the country's resources.
Merz and his finance minister, Lars Klingbeil, of the center-left Social Democrats, are negotiating deep cuts in benefits for German voters as they aim to close a 140 billion-euro budget deficit by 2029.
With both parties polling low and the far-right Alternative for Germany drawing support away from disgruntled workers, neither the chancellor nor his finance chief has much room to maneuver to reach a compromise.
Their dilemma is likely to deepen as slower-than-expected economic growth hits tax revenues and forces spending increases to support the unemployed, whose numbers have been rising for four years.
Source: Bloomberg
