Bloomberg: Merz struggles to deliver Germany’s economic recovery

German Chancellor Friedrich Merz is facing mounting challenges in delivering a meaningful economic recovery in 2026, despite the introduction of substantial stimulus measures, Bloomberg reports.

The outlook has been further complicated by escalating tensions in the Middle East, which have pushed up energy prices, fueled inflation and weighed on business confidence. As a result, Germany’s economic momentum has weakened, prompting the government to revise down its annual growth forecast.

According to Geraldine Dany-Knedlik of DIW Berlin, a recession is not currently expected, but risks are increasing and remain closely tied to the stability of oil and gas supplies, including flows through the Strait of Hormuz.

Recent business surveys indicate a deterioration in sentiment. The Ifo index declined in April to its lowest level since 2023, reflecting broader weakness across the eurozone economy. The Bundesbank estimates that Germany’s gross domestic product grew by only around 0.2% in the first quarter, while overall growth for 2026 could remain at approximately 0.3%.

Inflationary pressures are adding to the strain. Inflation is projected to rise to 3.1% in Germany and around 3% in the eurozone, limiting the scope for monetary easing by the European Central Bank and potentially further constraining economic expansion.

By Tamilla Hasanova