Source: Sharecast
The Bundesbank said the war was "weighing on the German economy" and would "initially slow down the recovery that began in the winter half-year", prompting a downgrade to its growth projections.
The bank now expects calendar-adjusted GDP growth of 0.5% in 2026 and 0.8% in 2027, down from previous projections of growth of 0.6% and 1.3%, respectively. However, growth is expected to accelerate to 1.4% in 2028.
Despite the downgrade, Bundesbank president Joachim Nagel struck a cautiously optimistic tone, saying: "Economic activity will gain traction again over our forecast horizon up to 2028."
He added that the recovery would be supported by "falling energy prices, a strengthening global economy and, above all, strong stimulus from fiscal policy".
However, the central bank warned that surging energy costs are squeezing households and businesses alike. Nagel said the "sharp rise in energy prices will dampen households' purchasing power and consumption expenditure", while firms face supply bottlenecks, weaker demand and elevated uncertainty.
At the same time, the Bundesbank sharply increased its inflation forecasts. It now expects the annual rate of harmonised consumer price inflation to reach 2.9% in 2026 and 2.7% in 2027 before easing to 1.9% in 2028. The central bank has previously expected inflation of 2.2% in 2026 and 2.1% in 2027.
Nagel said that higher energy costs would take time to feed through to consumers "directly via higher energy costs and indirectly via rising transport costs".
Nagel said the outlook was characterised by "particularly high uncertainty given the geopolitical situation".