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Germany’s Economy Braces for Sharp Q2 Deceleration
(MENAFN) Germany's government sounded the alarm Friday over a significant deceleration in economic growth expected in the second quarter, as the deepening Middle East conflict drives energy prices higher, fractures supply chains, and shakes confidence across the continent's largest economy.
The caution follows a better-than-anticipated first quarter and was laid out in a monthly report by the German Federal Ministry for Economic Affairs and Energy, which warned that "rising prices, supply chain disruptions and heightened uncertainty were increasingly undermining confidence among businesses and consumers."
The Ministry stressed that the trajectory of the economy hinges largely on how geopolitical tensions in the Middle East unfold — cautioning that even a de-escalation may not quickly reverse the damage already inflicted on energy markets, commodity prices, and supply networks.
Since hostilities intensified in late February, the financial ripple effects have hit German households hard. Inflation climbed to 2.9 percent in April — its steepest reading since January 2024 — with energy costs surging 10.1 percent year-on-year. Food prices also rose sharply over the same period.
"The overall sentiment has deteriorated noticeably again in recent weeks and points to a significant weakening in consumer activity in the second quarter," the Ministry said.
That grim outlook stands in sharp contrast to the January–March period, when household and government spending helped power a 0.3-percent expansion, according to preliminary data from the Federal Statistical Office.
Berlin also flagged deep-rooted weakness in manufacturing as an ongoing brake on recovery. While factory orders edged up in March, the Ministry warned the figure was partly distorted by companies front-loading orders ahead of further Middle East-driven disruptions. Industrial output has now shrunk for four straight quarters, and the latest business sentiment surveys show no indication of a turnaround on the horizon.
The caution follows a better-than-anticipated first quarter and was laid out in a monthly report by the German Federal Ministry for Economic Affairs and Energy, which warned that "rising prices, supply chain disruptions and heightened uncertainty were increasingly undermining confidence among businesses and consumers."
The Ministry stressed that the trajectory of the economy hinges largely on how geopolitical tensions in the Middle East unfold — cautioning that even a de-escalation may not quickly reverse the damage already inflicted on energy markets, commodity prices, and supply networks.
Since hostilities intensified in late February, the financial ripple effects have hit German households hard. Inflation climbed to 2.9 percent in April — its steepest reading since January 2024 — with energy costs surging 10.1 percent year-on-year. Food prices also rose sharply over the same period.
"The overall sentiment has deteriorated noticeably again in recent weeks and points to a significant weakening in consumer activity in the second quarter," the Ministry said.
That grim outlook stands in sharp contrast to the January–March period, when household and government spending helped power a 0.3-percent expansion, according to preliminary data from the Federal Statistical Office.
Berlin also flagged deep-rooted weakness in manufacturing as an ongoing brake on recovery. While factory orders edged up in March, the Ministry warned the figure was partly distorted by companies front-loading orders ahead of further Middle East-driven disruptions. Industrial output has now shrunk for four straight quarters, and the latest business sentiment surveys show no indication of a turnaround on the horizon.
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