Germany's central bank on Friday lowered its forecast for growth in 2026 to 0.5% as a result of the war in Iran.
The figure was slightly lower than the Bundesbank's previous biannual estimate of 0.6%, made in December.
Germany's economic recovery is being "slowed by the war in the Middle East," the Frankfurt-based bank said. "The sharp rise in energy prices will dampen households' purchasing power and consumption expenditure."
The forecast is the latest in a series of pessimistic reports on the development of the German economy - Europe's largest - as a result of the conflict in Iran, which has caused energy prices to spike due to the blockade of the Strait of Hormuz.
The government and the German Council of Economic Experts have both sunk their forecasts for annual growth in gross domestic product this year to 0.5% in recent weeks.
Chancellor Friedrich Merz has promised to revive the country's struggling economy, which narrowly avoided a third consecutive year of recession last year, but geopolitical developments appear likely to hamper a return to significant growth.
Higher costs for energy sources such as oil and gas are driving up inflation: the Bundesbank forecasts the harmonized index of consumer prices (HICP) - a standardized figure used to compare inflation across the EU - to reach 2.9% this year and remain at 2.7% in 2027 before falling to 1.9% in 2028.
The bank also expects consequences for the German labour market. According to its forecast, employment is likely to fall slightly this year before rising noticeably again from the middle of next year.
Only a massive programme of government spending is preventing the German economy from falling back towards recession, the Bundesbank said.
