Germany: Fiscal support offsets conflict shock – Deutsche Bank

FXStreet Insights Team FXStreet

Deutsche Bank analysts, including Mark Wall and team, argue Germany faces multifaceted headwinds from the Middle East conflict, with growth momentum weakening into mid‑2026. Expansionary fiscal policy is seen as the key stabilizer, keeping Gross Domestic Product (GDP) growth at 0.5% in 2026. As external conditions normalize, a fiscal-led domestic recovery is projected to lift German GDP growth to 1.3% in 2027.

Conflict headwinds and fiscal stabilisation

"The Middle East conflict has presented the German economy with multifaceted headwinds."

"Growth momentum is therefore likely to weaken towards the middle of the year."

"If our geopolitical baseline materializes, the economy should pick up again by Q4, even if inflationary pressures are likely to subside only slowly."

"Expansionary fiscal policy is the decisive stabilizer, so GDP is forecast to grow by 0.5% in 2026."

"By 2027, we expect a normalization of the external environment and a fiscal-led domestic recovery, lifting GDP growth to 1.3%."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

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