U.S. officials warn that the Iran crisis could cut this year's economic growth in half

Germany’s economy faces a serious threat from escalating Middle East tensions. According to foreign reports on Thursday, internal estimates within the German government suggest that if the Middle East conflict continues, Germany’s economic growth could drop to 0.5% this year in the worst-case scenario, half of the official forecast.

Even in a relatively optimistic scenario—assuming energy prices stay high but do not surge further—Germany’s economic growth this year is only expected to be between 0.6% and 0.7%, which may force a reassessment of the overall eurozone growth outlook.

Slower economic growth will reduce tax revenues, and German officials have begun discussing the possibility of raising the value-added tax (VAT) from 19% to at least 21%.

Additionally, in the worst case, Germany’s economic growth next year is also projected to decline to 1.2%, 0.1 percentage points lower than previous estimates. After experiencing two years of contraction and near stagnation, Germany’s economy has shown signs of recovery driven by public investment, and the government is hopeful for a sustained rebound.

Risks related to the Iran war have also prompted the European Central Bank and the Italian government to lower their growth forecasts. Reports indicate that the Italian government plans to cut its growth forecast for this year to 0.5%.